In Re the Estate of ELLIOT GOLDMAN , 215 Ariz. 169 ( 2007 )

FILED BY CLERK
MAY 30 2007
IN THE COURT OF APPEALS COURT OF APPEALS
STATE OF ARIZONA DIVISION TWO
DIVISION TWO
In re the Estate of ) 2 CA-CV 2006-0138
) DEPARTMENT A
ELLIOT GOLDMAN, )
) OPINION
Deceased. )
)
)
)
APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY
Cause No. P26182
Honorable Clark Munger, Judge
AFFIRMED
Duffield Young Adamson, P.C.
By K. Alexander Hobson Tucson
Attorneys for Petitioner/Appellee
Jewish Community Foundation of
Southern Arizona
Robert Barlow Phoenix
Attorney for Respondent/Appellant
Jay Goldman
P E L A N D E R, Chief Judge.
¶1 In this probate action, appellant Jay Goldman, personal representative (PR)
of the Estate of Elliot Goldman, appeals from a summary judgment entered in favor of
appellee, the Jewish Community Foundation of Southern Arizona. Jay argues that, because
the estate asset value at Elliot’s death was insufficient to pay a devise to the Foundation and
“date of death values are considered in determining whether abatement occurs,” the devise
to the Foundation abated, and the trial court erred in concluding otherwise. We disagree
and, therefore, affirm the judgment.
BACKGROUND
¶2 Although the pertinent facts apparently are undisputed, on appeal from a
summary judgment, “we view all facts and reasonable inferences therefrom in the light most
favorable to the party against whom judgment was entered.” Bothell v. Two Point Acres,
Inc., 192 Ariz. 313, ¶ 2, 965 P.2d 47, 49 (App. 1998). Elliot Goldman died in December
1995, and his brother, Jay Goldman, was appointed PR of the estate. In its first article,
Elliot’s will provided that “all expenses of [his] last illness and funeral, costs of
administration . . . and estate and inheritance taxes” were to be paid “from the residue of
[his] estate.” Article four of the will created trusts for each of Elliot’s two children with the
value of each trust “not [to] exceed $900,000,” including any life insurance proceeds. In
that same article, as amended by a subsequent codicil, Elliot also made several “specific
bequests,” including $250,000 and the marital residence to his wife; $25,000 to his cousin;
$20,000 to his business manager; and $300,000 to Jay.
2
¶3 In the will’s fifth article, Elliot made devises to several charitable
organizations, to be made “[a]fter payment of expenses, costs and other items under [the first
article] and the distribution provided in [the fourth] Article.” Those devises provided
$10,000 to the Community Food Bank of Tucson; $25,000 to Jewish Family Service of
Tucson; $15,000 to the Congregation Chofetz Chayim; and $50,000 to the Foundation.
That article further provided: “[I]n the event there are insufficient assets to pay the [fifth
article] specific bequests, then the assets on hand shall be first used to pay [Elliot’s wife] .
. . to the extent possible, and any remaining assets shall be used to pay the [remaining]
specific bequests . . . on a pro rata basis.” Any residue of the estate was to go to the
children’s trusts.
¶4 Jay valued the estate’s assets as of the date of Elliot’s death at $2,732,733,
consisting of $2,676,690 originally reported in the estate’s “Beginning Inventory” plus
another $56,043 Jay subsequently discovered. Jay averred that the children’s trusts received
$521,147 in insurance proceeds and that the fourth article bequests ultimately totaled
$2,023,853. Jay also averred that the first article payments—including estate debt, funeral
and administration expenses, and estate taxes—totaled $1,535,642. Thus, the first and
fourth article payments, which the will directed to be made before the fifth article devises,
exhausted the estate’s assets as originally valued.
¶5 In 2003, the estate’s real property was appraised again, and an increase in its
value resulted in an estate balance of $1,844,650.64 in November 2004. From Elliot’s death
3
to November 2004, Jay made payments to all of the fifth article devisees other than the
Foundation, presumably at least in part from this increase. Jewish Family Service received
$25,000; the Congregation Chofetz Chayim received $16,000 ($1,000 more than Elliot
devised to it); and the Community Food Bank received $10,000. Jay also made payments
to himself and to Elliot’s wife that exceeded the amounts left to them in the will’s fourth
article. But he did not pay the Foundation’s devise.
¶6 Jay averred he initially did not pay that devise “due to [his] concerns about the
ability of the Foundation to accomplish the goals [Elliot had] intended.” The $50,000 Elliot
had left to the Foundation was, in Jay’s opinion, “not sufficient to permanently endow an
annual trip to Israel” as Elliot had intended. Therefore, after offering to combine the devise
with a gift from his parents to establish a fund that would be shared with another office of
the Foundation, Jay finally offered to pay the Foundation $25,000. The Foundation rejected
those offers and asked for an accounting of the estate. Shortly thereafter, in August 2004,
the Foundation petitioned the probate court for an order to show cause seeking payment of
the $50,000 devise to it.
¶7 The court ordered Jay “to show cause . . . why the devise of $50,000 due to
[the Foundation], together with interest,” should not be paid and to produce an accounting,
which Jay provided in January 2005. After hearing oral argument on the parties’ cross-
motions for summary judgment, the probate court concluded the devise to the Foundation
had not abated and granted summary judgment in favor of the Foundation. In so ruling, the
4
court stated “Arizona law governing abatement of devises under a will is applied to the value
of the estate at the time of distributions, not to the value of the estate as determined at date
of death or as reported on a Federal estate tax return.” Accordingly, the court ordered Jay
to pay the Foundation $50,000 “with interest at the legal rate of 10% from January 22, 1997
until paid in full.” This appeal followed.
DISCUSSION
¶8 Jay contends “[d]ate of death values are considered in determining whether
abatement occurs.” Because the first and fourth article bequests exhausted the estate asset
value at the time of Elliot’s death, Jay argues, the fifth article devises abated. According to
Jay, “[a]ny post death appreciation would benefit the creditors and the unabated
beneficiaries,” and “[t]here is no legal basis for claiming an abated beneficiary interest is
somehow resurrected because probate assets later appreciate in value.” Thus, he maintains,
“the trial court erred in concluding as a matter of law that date of distribution and not date
of death values are considered in determining whether abatement applies.”
¶9 “On appeal from a summary judgment, we must determine de novo whether
there are any genuine issues of material fact and whether the trial court erred in applying the
law.” Bothell, 192 Ariz. 313, ¶ 8, 965 P.2d at 50. We also review de novo “issues involving
statutory interpretation.” Id.
¶10 “‘Abatement’ is the reduction of testamentary legacies because estate assets
are insufficient to pay debts and other legacies.” In re Estate of Mason, 190 Ariz. 312, 314
5
n.3, 947 P.2d 886, 888 n.3 (App. 1997), citing Thomas E. Atkinson, Law of Wills § 136
(2d ed. 1953). Under A.R.S. § 14-3902(A), “shares of distributees abate . . . in the
following order:” (1) “Property not disposed of by the will,” (2) “Residuary devises,” (3)
“General devises,” (4) “Specific devises.” With the exception of the residence willed to
Elliot’s wife, the devises at issue here are all general devises. See Atkinson, supra, § 132
(“A ‘general legacy’ is one which is payable out of general assets of the estate and which
does not require the delivery of any specific thing.”). The statute further provides that
“[a]batement within each classification is in proportion to the amounts of property each of
the beneficiaries would have received if full distribution of the property had been made in
accordance with the terms of the will.” § 14-3902(A).
¶11 Elliot’s will, however, provided that the first article expenses and fourth
article devises should be paid before the fifth article devises. And § 14-3902(B) provides
that, “if the testamentary plan . . . would be defeated by the order of abatement stated in
subsection A, the shares of the distributees abate as may be found necessary to give effect
to the intention of the testator.” Thus, under Elliot’s will, the fifth article devises would
abate before those in the fourth article. But, contrary to the method Jay followed by
ultimately withholding payment from only one devisee, each fifth article devise would abate
in proportion to the amount allocated to it in the will. See § 14-3902(A). Likewise, the
residuary devises to the children’s trusts would also abate, even before the general devises
set forth in the fifth article. See id.
6
¶12 As noted above, although payment of the first and fourth article devises
exhausted the value of the estate’s assets at Elliot’s death, that value subsequently increased
before the estate was closed. As a result, the estate ultimately was sufficient to cover all of
the other fifth article devises and to maintain a remaining balance, apparently totaling more
than $1,800,000 as of November 2004. Therefore, we must determine whether an estate
should be valued for abatement purposes at a fixed amount at the time of the testator’s
death, or rather, as the Foundation argues, “abatement occurs or does not occur based on
the value of the assets as finally distributed from the estate.”1
¶13 As Jay points out, this appears to be an issue of first impression in Arizona and
possibly the nation as a whole. The parties have not cited, nor have we found, any Arizona
case law or statutes directly on point. Nor does the Uniform Probate Code, on which
Arizona’s probate statutes are based, see 6 A.R.S. p. 13, address the issue raised here.
Several Arizona statutes, however, are instructive.
1
If an estate should be valued for abatement purposes at the time of the testator’s
death, as Jay urges, we agree with him that his payments to the other fifth article devisees,
and even the overpayment to himself, would not necessarily affect the abatement of the
Foundation’s devise. Indeed, Jay acknowledges that if his argument is correct, “Article Fifth
bequests abate in their entirety,” abatement “applies to all Article Fifth beneficiaries,” and
Arizona law “permits the Personal Representative to recover those previous improper
distributions to abated [Article Fifth] beneficiaries.” See A.R.S. § 14-3909 (“Unless the
distribution or payment no longer can be questioned because of adjudication, estoppel or
limitation, a distributee of property or money improperly distributed or paid, or a claimant
who was improperly paid, is liable to return the property improperly received and its income
since distribution if he has the property . . . [and otherwise] is liable to return the value as
of the date of disposition of the property improperly received and its income and gain
received by him.”).
7
¶14 First, A.R.S. § 14-1201(16) defines the term “estate” to “include[] the
property of the decedent, trust or other person whose affairs are subject to this title as
originally constituted and as it exists from time to time during administration.” (Emphasis
added.) Thus, a decedent’s estate is not fixed at the time of his or her death, but rather,
includes property existing at that time and throughout the administration of the estate. The
legislature’s use of the term “property” in statutorily defining an “estate” does not exclude
income or property appreciation and, in fact, implies that such increases should be included
in the estate “as it exists from time to time during administration.” Id.
¶15 Additionally, A.R.S. § 14-3708 requires a PR, under some circumstances, to
supplement the initial inventory filed pursuant to A.R.S. § 14-3706:
If any property not included in the original inventory
comes to the knowledge of a personal representative or if the
personal representative learns that the value or description
indicated in the original inventory for any item is erroneous
or misleading, he shall make a supplementary inventory or
appraisement showing the market value as of the date of the
decedent’s death of the new item or the revised market value
or descriptions, and the appraisers or other data relied upon, if
any, and file it with the court if the original inventory was filed,
or furnish copies thereof or information thereof to persons
interested in the new information.
§ 14-3708 (emphasis added). In closing an estate after unsupervised probate proceedings,
a PR also must verify that “the assets of the estate have been distributed to the persons
entitled” and must “furnish[] a full account in writing of the [PR]’s administration to the
distributees whose interests are affected thereby.” A.R.S. § 14-3933(A)(2), (3). Although
8
the parties agree a PR is not statutorily obligated to file a supplementary inventory or interim
accounting whenever the value of estate assets changes, the requirements in §§ 14-3708 and
14-3933 are at least consistent with the view that the value of estate assets at the time of the
testator’s death is not the only value that matters for distribution and accounting purposes.
¶16 We also note that the abatement statute, § 14-3902, is found in a statutory
article entitled “Special Provisions Relating to Distribution.” Likewise, the title of § 14-
3902 includes the term “distribution” and the statute itself refers to “shares of distributees,”
suggesting that abatement is tied more closely to the distribution of an estate than to the
initial inventory required by A.R.S. § 14-3706. Cf. United States Parking Sys. v. City of
Phoenix, 160 Ariz. 210, 211-12, 772 P.2d 33, 34-35 (App. 1989) (“[W]e can nevertheless
refer to titles and captions for indications of legislative intent.”). Similarly, when a
distribution is to be made in kind, the asset to be distributed is to be valued at or near the
time of distribution, not the time of the testator’s death. A.R.S. § 14-3906(A)(2)(b), (A)(3).2
In sum, although no statute specifically addresses this issue, the Arizona statutory scheme
2
As Jay correctly points out, A.R.S. § 14-3906 addresses distributions in kind, which
are not at issue in this case. We disagree with him, however, that the section is therefore
“not relevant to the issue presented” here. The means by which a personal representative
is to value property for one type of distribution is relevant, at least by analogy, to the
question of how a representative should value property for other types of distribution and
for purposes of abatement. Cf. Robson Ranch Mountains, L.L.C. v. Pinal County, 203
Ariz. 120, ¶ 13, 51 P.3d 342, 347 (App. 2002) (“We . . . seek to harmonize related statutory
provisions and ‘aim to achieve consistency among them’ in the context of the overall
statutory scheme.”), quoting Bills v. Ariz. Prop. & Cas. Ins. Guar. Fund, 194 Ariz. 488,
¶ 18, 984 P.2d 574, 580 (App. 1999).
9
relating to distributions from an estate suggests that the value of assets at the time of
distribution is relevant and that the value at the time of the testator’s death is not controlling.
¶17 Further, we are not persuaded by the cases, both Arizona and out-of-state, on
which Jay relies. Those cases merely stand for the propositions that a devisee’s interest in
the estate vests at the testator’s death, Betts v. Renfro, 148 So. 406, 409 (Ala. 1933), and
that the purpose of an inventory is to create a record of the assets of the estate, Lowry v.
Crandall, 52 Ariz. 501, 503, 83 P.2d 1003, 1004 (1938). It is undisputed here that the
Foundation has a vested interest in the estate; the only issue is whether the devise in which
it has an interest has abated. And, as noted above, Arizona law requires that an inventory
be updated throughout the administration of the estate whenever valuations set forth in the
original inventory are deemed “erroneous or misleading.” § 14-3708.
¶18 Raising various policy concerns, Jay also argues that, “[i]n order to facilitate
the orderly administration of the estate,” to lend certainty and predictability to the PR’s role,
and to eliminate “the unavoidable conflicts that will certainly emerge between abated and
unabated beneficiaries where abatement decisions are made at the time future distributions
are made,” “the law should require that date of death values be used to determine
abatement.” And, Jay further contends, “[u]se of a date certain [to value the estate for
abatement purposes] eliminates the need to speculate about future values.”
¶19 Elaborating on these points at oral argument in this court, Jay urged us to
adopt a bright-line, date-of-death valuation rule for abatement because such a rule could be
10
easily applied and would avoid the conflicting fiduciary duties he asserts a PR otherwise
would face. A PR owes a fiduciary duty to all beneficiaries to keep them reasonably
informed of the estate and its administration and to deal with estate assets in a manner in
which a prudent person would deal with the property of another. See A.R.S. §§ 14-
3703(A); 14-7302; 14-7303; see also In re Warren’s Estate, 74 Ariz. 319, 322, 248 P.2d
873, 875 (1952) (PR “owes a distinct and binding duty to the devisees and creditors alike
to properly account to them through the court concerning the management of the estate”),
modified on rehearing, 74 Ariz. 385, 249 P.2d 948 (1952); In re Estate of Pedelty, 61
Ariz. 425, 434, 150 P.2d 362, 366 (1944) (PR “should handle [estate] with the same
business acumen that he would handle a similar business matter of his own”). In addition,
a PR is obligated “to settle and distribute the estate . . . as expeditiously and efficiently as
is consistent with the best interests of the estate.” § 14-3703(A).
¶20 According to Jay, those duties would clash if a date-of-distribution rule for
abatement purposes were adopted. Such a rule, Jay argues, would create a conflict between
a PR’s duty to unabated beneficiaries, whose interests would often be best served by a
prompt disposition of the estate assets, and potentially abated beneficiaries, whose devises
might not abate if disposition of the estate were delayed in hopes that, over time, the estate’s
value would increase sufficiently to cover their interests.
¶21 We are not persuaded by these arguments. First, it is not clear that a date-of-
death valuation rule would be more easily applied, or more likely to avoid the conundrum
11
Jay postulates, than would a rule by which abatement is determined based on the value of
estate assets at the time of distribution. If assets were to be valued for abatement purposes
as of the testator’s date of death but, as in this case, the estate assets appreciate in value
during administration of the estate, the question of what to do with the excess value would
remain. The PR could not simply allocate that excess to the unabated beneficiaries absent
legal authority or a will provision to that effect. Nor could the PR disregard the order of
abatement prescribed in § 14-3902(A), unless the will expressly provided a different order
of abatement or the statutory scheme would defeat “the testamentary plan or the express or
implied purpose of the devise.” § 14-3902(B).
¶22 Thus, even if a date-of-death valuation applied, when estate assets appreciate
in value during administration of the estate and all unabated devises have been satisfied,
abated bequests quite likely would have to somehow be “unabated” in order to follow the
testator’s intent. In other words, even under the date-of-death valuation rule Jay advocates,
a PR easily could face essentially the same dilemma a date-of-distribution valuation rule
might pose.
¶23 In addition, the PR fiduciary conflicts Jay postulates are not only speculative
but also manageable. The law does not prohibit PRs from making partial distribution of
estate assets to specific beneficiaries in accordance with will provisions. Indeed, the record
reflects that during the nine years after Elliot’s death, Jay made periodic, partial distributions
of estate assets at various times and to various devisees under the will. Thus, as Jay’s own
12
actions illustrate, a PR’s alleged dilemma concerning distributions to unabated beneficiaries
could be largely illusory.
¶24 In addition, if a PR intends and is ready to distribute estate assets expeditiously
but, by doing so, might cause certain devises to abate, the PR is not without recourse.
Rather, a PR faced with such a situation could “petition for an order of complete settlement
of the estate” and request the probate court to “consider the final account” and approve the
PR’s “accounting and distribution.” A.R.S. § 14-3931(A). The probate court, in turn, may
“determin[e] the persons entitled to distribution of the estate,” approve “settlement and . .
. distribution of the estate and discharg[e] the [PR] from further claim or demand of any
interested person.” Id.; see also In re Estate of Thurston, 199 Ariz. 215, ¶ 19, 16 P.3d 776,
780 (App. 2000) (absent fraudulent concealment or misrepresentation in presenting
accounting or obtaining court approval, “the [probate] court’s approval of an estate
administrator’s accounting bars an attempt to reopen consideration of items presented in the
accounting”).
¶25 In sum, Jay’s policy arguments do not clearly militate in favor of adopting a
date-of-death valuation rule for abatement purposes. Rather, in our view, a rule requiring
date-of-distribution values to be used in determining abatement will encourage PRs “to settle
and distribute the estate . . . as expeditiously and efficiently as is consistent with the best
interests of the estate,” A.R.S. § 14-3703(A), rather than delaying the distribution in a
13
manner that might result in an appreciated value of estate assets with no clear recipient
beneficiaries.3
¶26 Jay also maintains that Elliot’s “[w]ill creates testamentary trusts for [the
children] and provides that the trusts may be funded with cash or property.” And, he posits,
“[t]he transfer [of assets] into a testamentary trust occurs automatically upon death of the
testator.” According to Jay, he “is not attempting to preserve . . . residuary devises” because
the “post-death appreciation [of the estate] benefits the . . . children[’s] trusts on account
of their status as Article Fourth beneficiaries—not because they were named as residuary
beneficiaries.” Therefore, he suggests the abatement of the fifth article devises does not
benefit the residuary estate, but rather, benefits the devises to the children’s trusts as an
increase in value of trust assets.
¶27 In his arguments below, however, Jay consistently took the position that “[a]ny
money recovered from the prior distributions [to the other fifth article devisees] would
3
This view is consistent with the few decided cases we have found that, though
distinguishable, tangentially address this point. In In re Estate of Zalaznick, 389 N.Y.S.2d
736, 738 (N.Y. Sur. Ct. 1976), the New York court found: “Neither the applicable statutory
or case law sanctions a result under which a distribution for residuary beneficiaries can
increase at the expense of abating general or specific bequests.” Although New York, unlike
Arizona, is not a Uniform Probate Code state, we find the Zalaznick court’s reasoning
instructive. Cf. Bunker’s Glass Co. v. Pilkington PLC, 202 Ariz. 481, ¶ 40, 47 P.3d 1119,
1129 (App. 2002) (although not binding, “the laws of other jurisdictions [are] sometimes
instructive”); see also In re Will of Maglin, 379 N.Y.S.2d 213, 215 (N.Y. Sur. Ct. 1975)
(“In the absence of any expressed directions to the contrary, assets are to be valued as of the
date of distribution.”).
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ultimately go to the remainder beneficiaries.”4 Because Jay did not raise his new
testamentary trust argument below, he has waived it. See Trantor v. Fredrikson, 179 Ariz.
299, 300, 878 P.2d 657, 658 (1994) (“Because a trial court and opposing counsel should
be afforded the opportunity to correct any asserted defects before error may be raised on
appeal, . . . errors not raised in the trial court cannot be raised on appeal.” ).5
¶28 Finally, we note that a fundamental purpose of the law of decedents’ estates
is “[t]o discover and make effective the intent of a decedent in distribution of his property.”
A.R.S. § 14-1102(B)(2). As noted earlier, Elliot clearly expressed an intent in his will to
prioritize the fourth article beneficiaries over the charitable beneficiaries covered in the fifth
article. By doing so, he implicitly provided that the fifth article devises would abate before
those set forth in the fourth article. But Elliot did not express any intent that a date-of-death
valuation of his estate should control for abatement purposes. And he expressly included
bequests to various charitable organizations, including the Foundation, in his will. In short,
nothing in the will suggests that Elliott intended the charitable bequests to abate under the
4
As noted earlier, n.1, supra, Jay maintained below and on appeal that the payments
he made to the other fifth article devisees could be recovered under A.R.S. § 14-3909 if
those devises were found to have abated.
5
As noted in ¶ 2, supra, Elliot’s will expressly stated his “intention that the value of
each [child’s] trust not exceed $900,000.00.” Although the will directed that “cash or assets
having [that] value” be placed in each child’s trust, the will did not provide that any
appreciated value of other estate assets accrue to the trusts. Nor does the record reflect that
the appreciation in value of the estate’s assets during administration of the estate arose from
assets that were used to fund the trusts or that were in any way related to them.
15
circumstances presented here, in which the value of estate assets dramatically appreciated
during the prolonged administration of his estate.
DISPOSITION
¶29 The judgment of the trial court is affirmed.
____________________________________
JOHN PELANDER, Chief Judge
CONCURRING:
____________________________________
JOSEPH W. HOWARD, Presiding Judge
____________________________________
GARYE L. VÁSQUEZ, Judge
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