Enforcement of Penalty Clauses in Arizona Estate Plans
A penalty clause in a will disinherits anyone who challenges the will. Under Arizona law, penalty clauses are upheld unless the person challenging a will has probable cause to do so. What constitutes probable cause to challenge a will? The Court of Appeals considered this issue in the case of In Re Estate of Shumway, 3 P.3d 977 (2000). The Arizona Supreme Court reversed part of that decision at 9 P.3d 1062 (Ariz. 2000).
Facts and Background
On June 26, 2007, Mr. Shumway executed a new will. He was legally blind and asked his assistant, Mrs. Rodriguez, to prepare it for him. It stated that his estate should be divided into four equal portions. One went to Mrs. Rodriguez, one to a nonparty, and two parts were divided among Mr. Shumway’s four daughters.
Mr. Shumway died less than a week later. Two daughters, V. Gavette and N. Cole, challenged the will. The court ruled against them and enforced the penalty provision, removing them as beneficiaries. They appealed.
The Unauthorized Practice of Law
V. Gavette argues that, by preparing the will, Mrs. Rodriguez engaged in the unauthorized practice of law. She argues this should
have invalidated the will or at least the bequest to Mrs. Rodriguez. Arizona courts recognize that there is no precise line between what is and what is not “the practice of law”.
Non-lawyers can do much of what lawyers do every day, but not everything. Giving advice about making a will is the practice of law. Typing out the words of another person is not. Therefore, if Mrs. Rodriguez acted as a scribe, without offering advice, she did not practice law.
Mrs. Rodriguez said she simply read the questions to Ralph and he answered them. The Court agreed with the trial court that this was not the practice of law.
She helped him prepare the will, but she never tried to hide the will from his children or made fraudulent representations to Mr. Shumway. The will was very different from Mr. Shumway’s first two wills but this made sense, given the age and ill health of his brothers.
In addition, it was uncontroverted that Mr. Shumway was very strong-willed and was adamant that things be done his way. Evidence suggested that he was not close to his children. But Mrs. Rodriguez did play a significant role in Ralph’s life. He often talked about her and said that she was a great help to him.
She testified that Mr. Shumway wanted to reward her for her services by giving her a portion of his estate. The record reveals a coherent and credible story that Mr. Shumway was not influenced by Mrs. Rodriguez. It shows that June 26, 1997, will accurately reflect his intended disposition of his estate.
Probable Cause for the Will Challenge
Finally, V. Gavette argues that she and her sister N. Cole should not be cut out of the will. The lower court enforced the will’s penalty clause excluding the two women who contested it. Penalty clauses are included in wills to prevent estate depletion by disgruntled heirs. In Arizona, forfeiture clauses are not invalid. However, they are unenforceable in Arizona if probable cause exists for the will challenge.
Probable cause requires evidence that would make a reasonably prudent person believe that the will is invalid. In this case, Mr. Shumway executed a will that Mrs. Rodriguez prepared; a will that bequeathed her 25% of the estate. He executed the final will while in bed in the hospital six days before he died.
Had Mrs. Rodriguez been an attorney, a gift would presumptively be invalid and violate ethical rules. V. Gavette argues that these facts are sufficient to provide probable cause for challenging the will. However, the Court noted, more facts were before the trial court.
The earlier will left all of the estate to Mr. Shumway’s brother, and nothing to the daughters. The will drafted just days before the final will gave his four daughters only 25% of the estate to share. The final version gave them 50%. The trial court found that Mr. Shumway was clearly competent to direct the disposition of his estate. It also heard persuasive evidence that the daughters were not close to Mr. Shumway. Moreover, V. Gavette petitioned for appointment as personal representative of her father’s intestate estate. This occurred after she learned of the existence of this will.
The trial court found the will contest unreasonable in these circumstances. Based on the facts in the record, the Court affirmed the trial court’s ruling on the issue of probable cause.
Arizona Supreme Court Review: Overturns Penalty Clause Ruling
The Arizona Supreme Court granted review of the Court of Appeals decision on one issue. Does a legal presumption of undue influence constitute probable cause to prevent enforcement of a penalty clause? A penalty provision triggered by a will contest is unenforceable in Arizona if probable cause exists for the will contest.
The Supreme Court noted that the appellate court’s opinion here was the first published decision to construe this statute. The Supreme Court noted that the rationale behind the rule on the enforceability of penalty clauses balances several policy factors. Some are public policy reasons to support penalty clauses. These include preserving the transferor’s donative intent and avoiding waste of the estate assets. They also include an imposing a penalty on a beneficiary who may use a will contest to coerce a more favorable settlement in the probate.
On the other hand, the public also has an interest in allowing court access to prevent probate of wills resulting from fraud and undue influence. This extends to otherwise invalid wills. The court of appeals construed the statute to mean that probable cause exists if a reasonably prudent person would believe that the will is invalid.
The Court of Appeals stated that probable cause requires an objective determination of whether reasonable persons would have thought that the father’s will was invalid. The court concluded that V. Gavette did not establish that a reasonably prudent person would have instituted or continued the contest of the will.
However, the court of appeals relied on definitions of probable cause used in criminal cases and in civil cases dealing with false arrest or malicious prosecution cases. The Supreme Court said that will contest require its own standard.
For will contests, the Supreme Court found that “probable cause” should be defined differently. In that context it means “the existence, at the time of the initiation of the proceeding, of evidence which would lead a reasonable person, properly informed and advised, to conclude that there is a substantial likelihood that the contest or attack will be successful”.
The evidence needed should be less where there is strong public policy supporting the legal ground of the contest or attack․ One
significant factor is whether the beneficiary relied upon the advice of disinterested counsel sought in good faith. The Supreme Court noted that good faith is not the sole test. However, it said that subjective belief on the basis of the challenge is part of the required belief in the substantial likelihood of success.
Here, before filing the action, V. Gavette obtained a written opinion from her father’s doctor that he was “borderline competent” during the last week of his life. She relied on this, as well as advice from her lawyer. He explained the legal presumption of undue influence that would apply here since Mrs. Rodriguez was both in a relationship of confidence with the decedent and a principal beneficiary.
When V. Gavette filed the contest, she could reasonably have questioned Mrs. Rodriguez’s ability to overcome the presumption of undue influence. The Supreme Court noted many other factors that could have caused V. Gavette to believe that the will challenge was reasonable in this case.
It stated that “Based on the circumstances surrounding the drafting and execution of this will, the doctor’s concern regarding the decedent’s competence, the lack of clarity of decedent’s intent, the presumption of undue influence, and the policy of Arizona law on this subject, we conclude there was probable cause to contest the will”.
The presumption of undue influence by Mrs. Rodriguez was eventually overcome. However, at the time of filing the contest, V. Gazette had grounds to believe there was a substantial likelihood of success-probable cause to contest the will. Hindsight cannot be utilized to later justify a finding that the contest was unreasonable.
The Arizona Supreme Court reversed the trial court’s rulings enforcing the will’s penalty clause to exclude V. Gazette and N. Cole as beneficiaries.
Contact our experienced Arizona Estate Planning Attorneys at (480)947-4339.