Category Archives: Tips For Executors

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When One Party to a Contract Dies

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If one party to a contract dies, the deceased person’s estate can usually simply enforce the agreement the same as if the original party to the contract were still alive. However, things can get even more complicated when dealing with family. For example, let’s say that one person loans money to another, such as when a parent loans money to a child. Is the contract still enforceable even when one party to a contract dies? Being a lawyer, my answer is, “It depends.”

For purposes of this post, I’m going to assume that there once was a valid contract. In other words, I’m not going to analyze the requirements to form a valid contract (such as offer, acceptance, lack of valid defenses, etc.). And I’m not going to analyze whether it was required to have been in writing (such as for a contract to transfer real property). However, I will discus some of the trickier issues that can arise when a person who is part of a contract (in other words, a “party to the contract”) dies.

Statute of Limitations Issues. A statute of limitations is a statute that limits the amount of time within which you can bring a legal action to enforce a contract. In Arizona, for example, a legal action to enforce a written contract signed in Arizona must be brought within six years of the breach. See A.R.S. 12-548. But what happens when we are dealing with family members?

Imagine this example: A parent loaned money to a child 10 years ago, and the parties signed a written loan agreement. The loan agreement stated the amount that was due and the interest rate. However, it did not provide a due date. The parent just died. Is the contract enforceable by the parent’s estate? Probably yes, unless some other defense applied, such as laches.

How about if the contract required periodic payments, plus an optional acceleration clause on the due date of each matured but unpaid installment? In that event, the six-year period would begin to run on the due date of each matured but unpaid installment. As to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause. Navy Fed. Credit Union v. Jones, 187 Ariz. 493, 930 P.2d 1007, 233 Ariz. Adv. Rep. 47, 1996 Ariz. App. LEXIS 281 (Ariz. Ct. App. 1996).

Discovery Rule. This is the rule that a claim accrues when the plaintiff knew or should have known by exercise of reasonable diligence that the plaintiff had been injured. Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 898 P.2d 964, 193 Ariz. Adv. Rep. 3, 1995 Ariz. LEXIS 55 (Ariz. 1995). The important inquiry in applying the discovery rule is whether the plaintiff’s injury or the conduct causing the injury is difficult for the plaintiff to detect. Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 898 P.2d 964, 193 Ariz. Adv. Rep. 3, 1995 Ariz. LEXIS 55 (Ariz. 1995).

Dead Man’s Statute. Arizona’s “Dead Man’s Statute” provides that “neither party shall be allowed to testify against the other as to any transaction with or statement by the testator…unless called to testify thereto by the opposite party, or required to testify thereto by the court.” A.R.S. § 12–2251. While most other states have eliminated their Dead Man’s Statutes, Arizona still has such a statute. However, it is discretionary. Personally, I have raised the Arizona Dead Man’s Statute multiple times over the years. In the context of a dispute over a written promissory note, the issue might be whether the debtor made payments that he claims should have reduced the debt. Verbal discussions with the deceased person over whether there was an agreement that payments or services (such as repairing the deceased person’s roof) were to be applied to the amount owing on the debt would usually fall within the Dead Man’s Statute. However, I have yet to witness a probate judge or commissioner actually keep evidence out based on the statute. Similarly, such discussions also typically fall within the definition of hearsay, but such hearsay statements are usually allowed in as freely as the shirttail relatives that often attend probate hearings.

This is by no means an exhaustive discussion. If you are trying to enforcement a contract against a deceased person’s estate (or if you are in charge of an estate involving such a situation), you really need an attorney.

If you have had any experience involving the enforcement of a contract when one of the parties has died, please share below.

 


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Trust Management: 3 Top Mistakes Trustees Make

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Trust Management 3 Top Mistakes Trustees MakeServing as a trustee is a big responsibility that can be complicated and confusing. It’s easy to fall into trouble if you’re misinformed or careless in the trust management. Keep in mind these three pitfalls when serving as trustee:

  1. Breaching fiduciary duties. Fiduciary duty is the highest legal duty of care recognized by the U.S. legal system. The most common example of breaching duties is when a trustee uses the trust to pay for personal expenses or purchases.
  2. Failing to keep beneficiaries informed. Trustees have the duty to keep beneficiaries “reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” Thus, beneficiaries are entitled to periodic accountings showing investments, disbursements and expenses. If a trustee is not transparent with these actions, he or she may be subject to legal action.
  3. Breaking the law. This can involve theft – the most common way a trustee may break the law – or the failure to pay taxes.

A trustee who doesn’t act in the best interest of the trust may be subject to consequences in civil court. The most common of these – for trustees who are also beneficiaries of an estate – is a surcharge, which is a legal term under probate law for a type of lawsuit that will reduce the trustee’s portion of the inheritance to return any losses to the trust that have been incurred because of mismanagement by the trustee. A trustee can also be personally liable for losses resulting from mismanaging assets in the trust.

If you’re concerned that a trustee is mismanaging your loved one’s trust, it’s important to seek help  immediately from an experienced probate attorney.

Many people want to avoid going to court to resolve their probate issues, but probate court exists to help families sort through the process of settling an estate. In fact, probate court can be particularly beneficial when a trustee is either a family member or a friend, because emotions and stress can complicate these situations.

If you’re a trustee and feel over your head in fulfilling your duties, attorneys can help you avoid pitfalls. You don’t have to do it alone. Consider hiring an attorney, bookkeeper, accountant or even a corporate trustee to work with you. A little bit of help can prevent not only mistakes but undue stress during an already-stressful time.

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Appearing Pro Per: Why You Shouldn’t Represent Yourself (even if you’re a lawyer)

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There is a trend for people to represent themselves more and more in legal matters. This is called appearing “in propria persona” or “pro per.” But unless it is an extremely simple legal matter (such as a speeding ticket or small claims court dispute), you are always going to be better served by having an experienced legal advocate on your side. Here are the top 4 reasons why you shouldn’t represent yourself (even if you’re a lawyer) in probate court.
Reason #1: Even if there is no dispute now, there could be if you do something wrong. If you are the person in charge, such as the personal representative or trustee, then you are held to a very high standard. You have a fiduciary duty to act in the best interest of the estate, to act fairly, and to administer the estate or trust expeditiously. But the applicable probate statutes, plus case law, are complicated even for lawyers who practice exclusively in this area. And if you make a wrong move (such as distributing money to the wrong people), you can be held personally liable. Is it really worth saving a few thousand dollars to risk this much personal liability?
Reason #2: You don’t know the applicable law and rules of procedure. Unless you are an experienced probate and estate planning attorney, you are at a severe disadvantage. You are expected to know all of the applicable probate statutes, plus the probate rules, plus the civil rules (to the extent that they do not conflict with the probate rules). Then there are the softer issues, such as knowing when the hearsay rule or the Dead Man’s Statute apply. (Hint: Even if you can recite these rules by heart, that has very little to do with their application in real life during a real evidentiary hearing.)
Reason #3: You are taken more seriously by the opposing parties (and the court) if you have a lawyer. In grade school, did you ever have an older sibling, or a friend, who could help you stand up to a bully or show you the ropes of how to deal with social situations? I had an older sister who would give me straight-forward advice about how to handle various social situations. Or have you ever gone to a party in which you didn’t know anyone? That is a lot easier with a “buddy” as well. Having a lawyer is somewhat like this. You don’t need to always worry that you might forget something or do something wrong, because your lawyer has your back and is helping you navigate the system.
Reason #4: You can’t see outside your own bottle. We all imagine that we are the stars of our own movies. Yet we don’t know how others perceive us. Are we being taken seriously? Do our legal arguments make sense to other people? Is our line of thinking persuasive? There is a saying among attorneys that “An attorney who chooses to represent himself in court has a fool for a client.” Even lawyers who routinely handle legal matters know better than to handle their own cases. The reason is this: We (as lawyers) would be too emotionally involved in our own situation to be able to make rational decisions. This hurts us when it comes to making sound, logical decisions. It also hinders our ability to see the big picture, possible flaws in our thinking, and possible solutions.
If this applies to lawyers who routinely handle legal matters, then it applies even more to non-lawyers. There is definitely an advantage to hiring an experienced advocate to handle your legal drama for you. It will get done quicker and have a higher likelihood of success.

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