RECENT ARKANSAS CASES Of INTEREST TO FIDUCIARIES

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1 RECENT ARKANSAS CASES Of INTEREST TO FIDUCIARIES October 25, 2017 Dan C. Young Rose Law Firm, a Professional Association 120 East Fourth Street Little Rock, AR (501) dyoung@roselawfirm.com i

2 Arkansas Appellate Cases of Interest to Fiduciaries 1. Lyle Farms Partnership v. Lyle, 2016 Ark. App 577, 507 S.W.3d 519 Facts: Charlotte and James Lyle were married on July 22, 2003, each signing a prenuptial agreement on that same day. The agreement was notarized, with the language preceding the notary s signature stating This document signed before my [sic] on July 22, James Lyle subsequently died, and his sister, Kathrine, was named as the personal representative of his unprobated Will. Katherine sought to enforce the prenuptial agreement, while Charlotte sought to have the agreement declared null and void. Charlotte put forth four theories as to why the prenuptial agreement was null and void, including that it was not acknowledged as required under Ark. Code Ann Charlotte filed a motion for summary judgment. Appellants opposed her motion and claimed any defects in the acknowledgment were cured by Ark. Code Ann The court granted Charlotte s motion for summary judgment, stating the prenuptial agreement did not meet the requirements of Ark. Code Ann because the document was not legally acknowledged. The notary certified only that he saw the parties sign the document. The court stated that the purpose of an acknowledgment is not just proof that the parties executed the document, but was meant to impress upon the parties to a document the significance of the document being signed. This appeal followed. Holding: The prenuptial agreement did not meet the requirements of Ark. Code Ann because the parties did not include an acknowledgment; the prenuptial agreement merely included a jurat. An acknowledgment is a formal declaration or admission before an authorized public officer by a person who has executed an instrument that such instrument is his act and deed. A jurat, on the other hand, is a simple statement that an instrument is subscribed and sworn to or affirmed before a proper officer without further statement that it is the act or deed of the person making it. The curative

3 provisions of Ark. Code Ann were inapplicable because there was no acknowledgment, defective or otherwise. Legislation: Subsequent to the decision in Lyle Farms Partnership, Ark. Code. Ann was amended to clarify the use of the word acknowledged. As amended, Ark. Code Ann provides acknowledged means: (1) A formal declaration or admission before an authorized public officer by the parties who execute the premarital agreement providing that the premarital agreement is the act and deed of the parties; (2) A sworn affirmation by the respective attorneys of each party that the party represented by the attorney understands and consents to the legal effect of the premarital agreement; (3) An agreement signed by the parties that is witnessed by a notary and includes a statement that the parties: (A) Have consulted with their respective attorneys regarding the premarital agreement; (B) Have read and understand the premarital agreement; and (C) Freely entered into the premarital agreement without coercion or undue influence; or (4) An execution of the premarital agreement by both parties that is witnessed by two (2) individuals who are disinterested parties to the premarital agreement. 2. Hudspeth v. Hudspeth, 2017 Ark. App. 30, 511 S.W.3d 876 Facts: Brad Hudspeth and Kim Hudspeth (now Lemons) were divorced by decree in During their marriage and at the time of the divorce both were employed by the United States Postal Service. Incorporated into their divorce decree was a property-settlement and separation agreement, which

4 provided in paragraph 4 that Brad Hudspeth had exclusive ownership of certain items of non-marital property, including the cash value of any and all life insurance policies insuring his life. Also in paragraph 8 of the agreement, each party relinquished any and all claims toward the other party s pension plan or any other benefits to which either party was entitled under the Federal Employees Retirement System. Brad also carried a basic life insurance policy for which he had designated Kim as the beneficiary. However, Bard did not change the beneficiary on his basic life insurance policy subsequent to his divorce. Brad Hudspeth died intestate on October 11, Subsequent to Brad s death, Met Life, the insurance carrier for Brad s life insurance policy, paid the $60,000 policy limit to Kim as the named beneficiary of the policy. Robert Hudspeth, Brad s brother and administrator of his estate, filed a motion to enforce the divorce decree and for a temporary injunction, alleging the property-settlement agreement precluded Kim from receiving the lifeinsurance proceeds. The court found that Kim had waived her right to proceeds based on paragraphs 4 and 8 of the property-settlement agreement, and it awarded the proceeds to Robert as the administrator of Brad s estate. Kim appealed. Holding: Paragraphs 4 of the parties property-settlement agreement does not apply to the Met Life insurance policy. Paragraph 4 references only the cash value of life insurance policies, not the proceeds payable to a beneficiary on the death of Brad Hudspeth. Paragraph 8 also does not apply as it refers only to retirement accounts and pension plans. When insurance policies are not addressed in a divorce decree, the rights of the designated beneficiaries of the contract are determined in accordance with contractual law (citing Allen v. First National Bank of Fort Smith, 261 Ark. 230, 547 S.W.2d 118 (1977)). The court cannot make a contract for the parties, but can only construe and enforce the contract they have made. Neither the Met Life policy nor life insurance proceeds generally are addressed in the parties property-settlement agreement; therefore, it is not applicable. Kim is entitled to the proceeds of the Met Life insurance policy

5 3. Holmes v. Potter, 2017 Ark. App. 378,523 S.W.3d 397 Facts: In 2004, Fred and Betty Potter signed reciprocal, mirror-image trusts providing that four members of Betty s family and one member of Fred s would receive the residuary principal assets from both trusts. Each settlor was to be the trustee of his or her trust during the settlor s lifetime and appellant Cassaundra Holmes would become the successor trustee. Betty died in January 2013, and Holmes became successor trustee of Betty s Trust. In September of 2013, Fred filed a complaint seeking Holmes s removal as trustee, asserting that Holmes was not paying him the income from Betty s Trust and alleging Holmes had breached her fiduciary duties. Holmes answered Fred s complaint denying the material allegations and later filed a counter claim against Fred, individually and as trustee of the Fred R. Potter Revocable Trust ( Fred s 2004 Trust ). Holmes contended that after Betty s death, Fred amended his own trust, despite Fred and Betty s alleged agreement as to reciprocal trusts, and created a new trust ( Fred s 2013 Trust ) to remove Betty s family members as beneficiaries and then transferred the assets from Fred s 2004 Trust to Fred s 2013 Trust without valuable consideration. Holmes asserted this transfer was conversion, and she requested specific performance of Fred s 2004 Trust. Later, two other members of Betty s family, Kevin Wright and Thomas Wright, filed a thirdparty complaint against Fred, individually and as trustee of Fred s 2004 Trust, for specific performance of Fred s 2004 Trust and for a declaration that Fred s 2013 Trust was invalid. After a bench trial, the circuit court found that there was no contractual agreement that prevented Fred from amending his trust, and that the amendments made creating Fred s 2013 Trust were valid and it denied the requests to set aside those amendments. The court also found that there was no agreement between Fred and Betty to make their trusts irrevocable, and that the transfer of assets from Fred s 2004 Trust to Fred s 2013 Trust was neither a breach of fiduciary duty nor a conversion of assets belonging to Betty s Trust. Based on the finding that there was no contract between Fred and Betty, the court also ruled that Holmes and the Wrights

6 lacked standing to pursue the breach of contract and breach of fiduciary duty claims against Fred. An appeal followed. Holding: Betty and Fred did not execute irrevocable trusts. Although the terms of the trusts executed by Fred and Betty were virtually identical, there is no writing evidencing a contract not to revoke the trust; instead, the trusts clearly indicate a contrary intent as both Betty and Fred reserved the right to amend, modify, or revoke the trusts in whole or part at any time. The execution of reciprocal wills is governed by statute, Ark. Code Ann (b), which requires contracts to make or not to revoke a will be proven by a writing or an express reference within the will. The statute further provides that the execution of a reciprocal or mutual will does not create a presumption of a contract to make a will or not to revoke the will. When there is an allegation of a contract to make a will, the standard requires clear, cogent, and convincing evidence to prove such contract. Here, the only evidence supporting such a contract was testimony from interested parties stating Betty s and Fred s intent, and this is not enough to require reversal. 4. Farrow v. Fuller, 2017 Ark. App. 144, 515 S.W.3d 652 Facts: Laurie Farrow and Richard Bloch were romantic partners for thirty-five years, but never married. Their relationship ended in 2012, and litigation was initiated regarding the operation of a restaurant the parties owned, Autumn Breeze, and other assets. A settlement agreement signed as a result of the litigation stated that Farrow and Bloch remaining joint owners of the restaurant property. As to the restaurant property, Bloch was to have sole and exclusive use of the real estate in exchange for payment of $1 per year as rent. Bloch was to list the property for sale for the sum of not less than $335,000, and upon the sale of the property, all profits were to be divided equally between Farrow and Bloch. Bloch married Sheila Fuller on January 1, On March 6, 2015, Bloch died intestate. Fuller was appointed personal representative of Bloch s estate. Farrow filed a petition to have the restaurant property removed from

7 the estate. The circuit court denied Farrow s petition to remove the restaurant property from the estate. Further, the circuit court converted the ownership interest to a tenancy in common, finding that the property was not mortgaged and the intent of the settlement agreement was clear that Farrow and Bloch would share an equal interest in the division of the parcel. Farrow appealed. Holding: The circuit court erred in converting the restaurant real estate to a tenancy in common. The real estate was owned as a joint tenancy with right of survivorship, and passed by operation of law to Farrow at Bloch s death. The settlement agreement did not change the joint tenancy to a tenancy in common. The supreme court has held that the issue of whether a settlement agreement changes a tenancy by the entirety to a tenancy in common turns on the construction of the language in the settlement agreement. The supreme court has previously upheld conversion of a tenancy by the entirety to a tenancy in common where the settlement agreement included the statement that it was the intention of the parties that all rights, interest, liabilities, and relations, with respect to property and financial matters be finally and conclusively fixed and determined by this agreement in order to settle and determine in all respects and for all purposes their respective present and future property rights, claims and demands in such a manner that any action with respect to the rights and obligations, past, present, or future, of either party, with respect to the other, be finally and conclusively settled and determined by this agreement. Rucks v. Taylor, 282 Ark. 200, 667 S.W.2d 365 (1984). In comparison with Rucks, the settlement agreement between Farrow and Bloch did not state an intent to dispose of all property rights upon execution of the agreement, and they did not execute deeds to reflect a change in their ownership. As a result, the property continued to be owned as a joint tenancy with right of survivorship after the settlement agreement was entered, and upon Bloch s death, the property passed by operation of law to Farrow. The circuit court was reversed on this issue

8 5. Rogers v. Ritchie, 2017 Ark. App. 420 (not reported in Southwestern Reporter) Facts: In 2004, the Pulaski County Circuit Court, Thirteenth Division, entered an order appointing John Collins Rogers s wife, Barbara Rogers, as guardian of his person and his estate. The guardianship was granted despite the lack of the requisite professional evaluation of John s medical and physical condition. Prior to the guardianship, John worked as a financial investor at John Collins Rogers & Co. An accounting firm was hired to audit John s books, and it was discovered that he was depositing money from clients trusts into a single commingled account that he used to pay his personal expenses. One entity affected by John s actions was the Martin Family Trust, which obtained a $723, consent judgment against Barbara in her capacity as John s guardian as a result of John s business practices. Florida Martin Richie and Katherine Ann Martin Jaco, as co-trustees of the Martin Family Trust sought to have the order appointing Barbara as John s guardian set aside based on the lack of the requisite professional evaluation. Barbara defended her status as John s guardian, and the circuit court denied the request to set aside the guardianship order. John died in In January 2008, Florida Martin Ritchie requested to be appointed as the personal representative of John s estate after none of John s family members attempted to administer John s estate. After a hearing, Florida was appointed as personal representative of John s estate and the guardianship case was transferred to the Ninth Division. Barbara filed a final accounting and motion to terminate the guardianship shortly following the January 2008 hearing. The parties disputed for several years whether certain expenditures were allowable expenses of the guardianship. A hearing was held in May 2009, at which the circuit court heard argument from Barbara s counsel on whether, in cases in which the guardian is the spouse of the ward, allowable expenses of the guardian can include the expense of maintaining the household in which the guardian and ward reside. The circuit court found as a matter of law that Barbara was not entitled to support herself with John s funds. After the order, Barbara filed an amended final accounting in August

9 2009, and a hearing was held but that hearing was adjourned without a formal ruling. Several years later in April 2015, Barbara filed a second amended final accounting. The circuit court held a hearing on the second amended final accounting in October 2015 and entered a final order in March The order disallowed certain expenditures made by Barbara during the pendency of the guardianship, but allowed others, including funeral expenses and life insurance premiums paid to MetLife/NE Financial life. Barbara appealed the circuit court s order asserting the circuit court erred by (1) finding as a matter of law that she was not entitled to support herself with John s funds, (2) disallowing certain expenditures that were made to care and maintain the ward and his dependents without ruling on whether they were reasonable and proper and expended on the ward, (3) specifically disallowing expenditures for food and nutrition and storage-unit fees, and (4) refusing to find the order appointing Barbara as guardian void on its face. Florida cross-appealed, contending the circuit court erred in allowing funeral expenses and life insurance premiums as expenses of the guardianship. Holding: As to Barbara s points for appeal, the Arkansas Supreme Court has held that expenditures that contributed to the ward s care and maintenance and are consistent with the ward s previous pattern of expenditures and charitable giving can constitute permissible payments for the wards maintenance. See Stautzenberger v. Stautzenberger, 2013 Ark. 148, 427 S.W.3d 17. In Stautzenberger, the Arkansas Supreme Court contemplated that one could continue to be supported by the ward as long as the support may be construed to be property for the care and maintenance of the ward, and in addition, the approval of such expenditures is predicated upon whether they are reasonable and necessary. Barbara was John s spouse and testified that he was the sole financial provider for almost the entirety of their forty-year marriage. The circuit court erred when it disallowed the expenditures made for the benefit of Barbara without consideration of whether they were reasonable, necessary, and proper for the care and maintenance of the ward. Accordingly, the circuit court was reversed on this issue, and it was directed on remand to consider whether these expenses were reasonable and necessary and could be construed to be proper for John s care and maintenance. Due to this conclusion, the court was unable

10 to address Barbara s 2 nd and 3 rd points on appeal. As to Barbara s final point on appeal regarding her appointment as guardian, the court rejected Barbara s argument pursuant to the invited-error doctrine. It was Barbara who requested the guardianship and failed to obtain the requisite professional evaluation, and therefore, she was not allowed to complain that the guardianship was deficient due to this defect. As to Florida s points on cross-appeal, the circuit court erred in allowing John s funeral expenses as expenses of the guardianship. By law, a guardianship terminates when the ward dies unless the guardian takes steps to convert the case to a decedent s estate, and Barbara never attempted to administer John s estate after his death. The circuit court also erred in finding the life insurance premiums paid to MetLife/NE Financial life were allowable expenses of the guardianship. Based on Barbara s testimony, the premiums were for policies on both Barbara s and John s lives. This issue was remanded to the circuit court to determine whether money expended for Barbara insurance premiums was property for the care and maintenance of John, and if not, then to reduce the amount of the allowable expenditure to account for only those premiums paid on John s behalf. 6. CMS Investment Holdings, LLC v. Estate of Wilson, 2016 Ark. App. 545, 506 S.W.3d 292 Facts Robert M. Wilson, Jr. ( Wilson ) died August 3, Prior to his death, Wilson owned the Wilson Law Firm. A case was opened to probate his estate on August 8, 2012, and his former wife, Jennifer Wilson-Harvey, was appointed as personal representative of the estate. On August 11, 2012, the Estate published notice to creditors pursuant to Ark. Code Ann (a)(1)(A). The Estate also served notice on certain creditors pursuant to Ark. Code Ann (a)(4)(A); however, appellant CMS Investment Holdings, LCC ( CMS ) was not among them. CMS filed claims against the Estate on June 6, 2014, approximately twenty-two months after notice was published. The Estate filed a motion to deny the claims as untimely, and CMS responded asserting that is claims were timely pursuant to the two-year time limit imposed on known or reasonably ascertainable creditors in Ark. Code Ann (h)

11 CMS s claims stemmed from two lawsuits, both of which were initiated in March 2014, subsequent to Wilson s death and the opening of his Estate. Both lawsuits involved losses in connection with CMS s investment and membership in a corporation known as RP Holdings Group, LLC (RPHG). Jennifer Wilson-Harvey was a signatory to the LLC Agreement that identifies CMS as an owner of RPHG. RPHG purchased the non-legal services business of the Wilson Law Firm, and the two parties entered into an exclusive services agreement. Subsequently, there were financial disputes between Wilson and RPHG related to the service agreement. These disputes resulted in a series of interim agreements and lawsuits between Wilson and RPHG, but CMS was never a party to the agreements, lawsuits, nor any of the communications between Wilson and RPHG. The circuit court conducted an evidentiary hearing on the Estate s motion to deny CMS s claims. At the hearing, the Estate presented evidence in support of its position that CMS was not entitled to service of notice of the probate of Wilson s Estate. This evidence notably consisted of testimony from Wilson s longtime attorney and attorney for his Estate, Rufus Wolff, and the accounting supervisor at the Wilson Law Firm, Stephanie Pollard. Wolff testified that he had access to and had searched Wilson s records and documents and that there was no information that CMS was a creditor or that it sought to assert a claim against the Estate. Pollard indicated she had prepared an exhaustive list of Wilson s books and records, including all vendors and creditors, and found no files on CMS. The circuit court granted the Estate s motion to deny CMS s claims. CMS appealed. Holding The circuit court did not improperly determine that written service of notice to CMS was unnecessary. The testimony of Rufus Wolff and Stephanie Pollard supported that there was no indication that CMS was a creditor of the Estate or sought to assert a claim against it. The mere fact that the Estate knew of CMS s identity is insufficient to make CMS a known or reasonably ascertainable creditor of Wilson s Estate

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