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Narang v. Ranjan

Court of Appeals of Arizona, First Division

June 23, 2016

MUKESH NARANG, as Trustee of the Rakesh Malhotra Qualified Personal Residence Trust; RAKESH MALHOTRA, a single man, Plaintiffs/Appellees,
SUDHIR RANJAN, as Trustee of Neera Malhotra Qualified Personal Residence Trust; NEERA MALHOTRA, a single woman, Defendants/Appellants, SUDHIR RANJAN, as Trustee of the Malhotra Children's Trust UAD 5-10-93, Intervenor/Appellant.

         Appeal from the Superior Court in Maricopa County No. CV2013-006427 The Honorable Dawn M. Bergin, Judge.

          Stinson Leonard Street LLP, Phoenix By Lonnie J. Williams, Jr. Counsel for Plaintiffs/Appellees

          Fennemore Craig, P.C., Phoenix By Alexander R. Arpad Counsel for Defendants/Appellants

          Judge John C. Gemmill delivered the decision of the Court, in which Presiding Judge Andrew W. Gould and Judge Margaret H. Downie joined.


          GEMMILL, Judge

         ¶1 This is an appeal from an order compelling a partition sale of a residence owned by two separate Qualified Personal Residence Trusts ("QPRTs") created by the trustors, Neera Malhotra and Rakesh Malhotra. The trial court held the residence was subject to partition and ordered the sales proceeds be allocated equally between the Neera Malhotra QPRT ("Neera QPRT") and the Rakesh Malhotra QPRT ("Rakesh QPRT"). Neera Malhotra and Sudhir Ranjan, the trustee of the Neera QPRT and the Malhotra Children's Trust UAD 5-10-93 ("Children's Trust") (collectively "Appellants"), appeal the compelled partition.


         ¶2 The property at issue is a residence that Rakesh and Neera owned as community property during their marriage. In 2000, while still married, Neera and Rakesh each transferred his or her entire undivided one-half interest in the residence to a trust: Neera transferred her interest to the Neera Malhotra QPRT and Rakesh transferred his interest to the Rakesh Malhotra QPRT.

         ¶3 A QPRT is an irrevocable trust into which the donor places a personal residence for gift and estate tax purposes. The Neera QPRT terminates in 2030 or upon her death; the Rakesh QPRT terminates in 2020 or upon his death. Other than the durations, the provisions of the QPRTs are identical. Each QPRT names the Children's Trust as the remainder beneficiary upon expiration of the trust's term. Sudhir Ranjan is the trustee of the Neera QPRT, and Mukesh Narang is the trustee of the Rakesh QPRT.[1]

         ¶4 Pursuant to the QPRTs, Neera and Rakesh, as trustors, each had the exclusive right to "the use, occupancy and enjoyment of the Residence" rent-free for the term of the trust. The "Residence" is defined as "the real estate described in Schedule A and any substitute personal residence acquired by the Trustee in accordance with the provisions of this Agreement." Schedule A describes this specific home. Each QPRT allows the trustor to sell the Residence and purchase a replacement residence within two years of the sale or the proceeds would convert to a Grantor Retained Annuity Trust ("GRAT") which would pay the trustor an annuity. If a trustor is living at the expiration of the trust term, the remaining QPRT or GRAT assets are distributed to the Children's Trust. The trustor may designate in his or her will who would receive the remaining QPRT or GRAT assets, subject to the interest of the Children's Trust, if he or she were to die during the term of the trust.

         ¶5 Rakesh and Neera divorced in 2011. The decree did not allocate the residence because it was owned by the QPRTs and was no longer community property. In 2013, Rakesh and Narang as trustee of the Rakesh Malhotra QPRT ("Appellees") filed an action seeking to partition the residence owned by the QPRTs. Both parties filed motions for judgment on the pleadings. In allowing partition, the court concluded any interest the Children's Trust had in the remainder of each QPRT estate would remain the same after partition and, therefore, would not be prejudiced.

         ¶6 Having decided it would allow partition, the court then held an evidentiary hearing to determine how to partition the property and allocate sales proceeds among the interested parties, and found the QPRTs had an equal share or interest in the property. Finding the residence could not be divided in kind and that partition "in time, " as proposed by Appellants, was "impractical" and not supported by authority, the court ordered the residence sold in partition and the proceeds distributed equally to the two QPRT trustees. Appellants filed a timely notice of appeal from the order compelling partition.

          ¶7 In furtherance of the partition order, the trial court appointed a real estate agent to list the property for sale and ordered the parties to seek an emergency hearing if they disagreed with the agent's recommendation regarding a counteroffer. Appellants filed a timely amended notice of appeal from this order.

         ¶8 After the amended order compelling partition, the realtor received two offers on the property in December 2015. Appellants disagreed about whether to make a counteroffer of $1.7 million and requested an emergency hearing. After the hearing, the trial court authorized the real estate agent to make a $1.7 million counteroffer that would be binding upon Appellants. That order was stayed by the trial court pending a ruling from this court on Appellants' motion to stay filed herein.


         ¶9 Appellants present two issues on appeal: whether this residence is subject to partition and, if so, whether the partition order is proper in light of other remedies and adequately protects Appellants' interests.

         Partition is Permissible ...

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