Probate Court Estate Settlement in Arizona
Personal representatives in probate have authority to enter into settlement agreements to resolve issues. The statute requires the signatures of all interested parties before a probate court approves a settlement. Must all beneficiaries of an estate approve of an agreement? Or just those making the agreement? In the case of In re Estate of Riley, 295 P.3d 428 (2013), the Arizona Supreme Court considered this question.
Facts of the Case
M. Riley died in 1996, leaving her estate to her thirteen children. The Last Will & Testament appointed the eldest two children, J. Riley and T. Benge, as co-personal representatives. The estate was divided into 13 shares. In 2006, J. Riley and T. Benge filed a petition to distribute and close the estate.
The petition included an accounting. One of the beneficiaries objected to the accounting. He charged that J. Riley and T. Benge breached their fiduciary duties. He asked the court to appoint a successor personal representative. The probate court appointed Mr. Barkley as such. J. Riley and T. Benge filed another accounting. After reviewing it, Barkley found inaccuracies.
Barkley settled the estate’s claims against J. Riley and T. Benge. The settlement agreement required J. Riley to pay $15,000 and disclaim his interest in the estate. T. Benge was to pay $50,000, but retain her interest in the estate. In exchange, the estate agreed to release all claims against J. Riley and T. Benge.
The compromise required approval by the probate judge and was to bind all of the beneficiaries. Nine of the thirteen children objected to the settlement. Nonetheless, the probate court approved the agreement as the settlement of a good faith dispute. The other children appealed.
The court of appeals found the agreement was void since it was not executed by all the beneficiaries. The Supreme Court granted Barkley’s petition for review because this case presents an important issue of first impression.
Securing Probate Court Approval of Compromise
Arizona law sets forth a procedure for securing court approval of a compromise of disputed interests in the estate. It required that the compromise be executed by all persons having interests or claims which may be affected by the compromise.
If the court formally approves the compromise, it is binding on all the parties. The parties in this case disagree as to who must sign. They disagree as to whether only T. Benge and J. Riley or all beneficiaries must execute the agreement.
Barkley contends that only T. Benge and J. Riley must sign. He argues that the law distinguishes between disputes over estate administration and disputes over estate distribution. He says that only the latter (disputes over distribution) require all beneficiaries to agree. He claims that this agreement resolves an administrative dispute which does not require all beneficiaries’ signatures.
However, the Supreme Court found that the agreement altered the distribution scheme of the estate. It required division of the estate among 12 beneficiaries instead of 13. The agreement thus affected the “beneficial interests” of the remaining twelve beneficiaries. Therefore, all of the beneficiaries had to execute the agreement before the court could approve it.
Only Barkley, J. Riley, and T. Benge signed the agreement. Therefore, the probate court’s approval did not bind those who did not sign it. The Court noted other compromise procedures available to a personal representative that did not include probate court approval. These would not, however, insulate a personal representative from future litigation.
The Arizona Supreme Court reversed the ruling of the lower court and remanded the case back to the probate court.