After someone dies, most believe the will or trust is the final word and must be followed. That’s never really true. Often the document can’t be changed. But, if everyone involved can agree, they usually can deviate from the document and divide assets differently.
Under Arizona law, a will cannot be reformed or modified, and a trust can be modified only under certain specific circumstances, which we’ve written about before. But there’s another way. Beneficiaries, those who receive property under the document or by state law if there is no document, can rearrange how property is distributed. This way of changing an estate plan is not “reforming” the will or “modifying” a trust by literally changing the words; the document itself remain as it was. It’s that those who are receiving property have agreed to do something different. Usually this is because there is a controversy or disagreement. Rather than engaging in a formal dispute, the parties work it out. Sometimes, though, beneficiaries just want to do the right thing.
Not the Final Word
Let’s say mom could be cruel and vindictive and routinely shifted shares for her children depending on who was in (and out of) favor. Someone’s going to be on the outs at mom’s death. In such a case, the children can agree that they’ll get equal distributions.
Or maybe there is no will, and the children get equal shares under the laws of intestacy. But middle child acknowledges that he borrowed money from mom and dad to, say, buy a house. In the end, he wants to be fair and wants to reduce his share and increase his siblings’ shares.
Or maybe dad has political views that are different from some children and leaves them $1 under his trust and his like-minded children percentages. Again, the children can decide to divide the trust estate differently.
In these scenarios, the parties would instruct the personal representative or trustee to distribute the estate as they have decided, and the fiduciary has to abide by the agreement.
And, in all cases, not all beneficiaries need to be in on the shuffle; a subset can agree, and the others can’t do much of anything about it. After all, any beneficiaries could make gifts to one another after distribution; this procedure allows that to happen earlier in an orderly, organized process.
Statutes That Allow This
For wills, A.R.S. § 14-3912 provides for these “private agreements among successors to decedent.” As long as all creditors, taxes, and costs of administration are paid, a personal representative has to abide by the agreement.
Altering a trust is a bit more difficult. That may be surprising because trusts are known for providing flexibility. The statute (A.R.S. § 14-10111) allows settlements for broad purposes (“any matter involving a trust”). But the statutory hurdles are higher. The changes must not violate a “material purpose” of the trust. And further, any change must be consistent with the Arizona Trust Code or other applicable law.
One important rule: All parties to the agreement must be “competent,” though parents can act on behalf of minors. An agent under power of attorney or conservator usually can stand in for an incompetent party.
Seeking Court Approval
These can be private agreements, but those involved also can seek court approval. A.R.S. § 14-3952 lays out the procedure. In short, 1) the agreement needs to be in writing and signed by the parties; 2) it must be submitted to the court for approval; 3) those with an interest in the change must be notified; 4) the court must find that “the contest or controversy is in good faith and that the effect of the agreement upon the interests of persons represented by fiduciaries or other representatives is just and reasonable”; then 5) the court approves the agreement and directs fiduciaries to execute it; and 6) the estate is disposed of according to the agreement.
For trusts, the court would have to find that the alterations did not violate a material purpose. If, in the political dad example above, the court determines that a material purpose of the trust was furthering dad’s political views, changing the distributions would not be approved. The judge further would have to find that agreement was consistent with the Arizona Trust Code or other laws that might apply. It couldn’t, for instance, terminate a trust for impermissible circumstances.
Court approval helps ensure those with any misgivings express them; it would be very difficult to reverse a such a ruling if those involved received proper notice. It also has the effect of officially binding more people (“including those unborn, unascertained or who could not be located”), according to A.R.S. § 14-3951.
Ensuring the New Final Word Lasts
As lawyers, we think it’s best to have lawyers help with such agreements. The best scenario: All parties have counsel to advise each of them about their rights under the governing document and under the agreement. That helps ensure there are no regrets.
Beneficiaries often don’t realize they have the power to alter what appears to be the final word. If they can manage to agree, a re-do is doable.