Monthly Archives: August 2013

August 26, 2013

Transparency is the Best Policy

by Rebecca Klock Schroer

In the Fiduciary Solutions Group, we constantly find ourselves discussing the importance of transparency for a trustee and/or personal representative.  It is rare that one of our cases does not involve some issue relating to disclosure.  In Colorado, there are several mandatory disclosure requirements for trustees and personal representatives that are codified by statute or court rule.  In our experience, we have found that it is almost always a good idea for trustees and personal representatives to go beyond the bare minimum requirements and be as transparent as possible with their activities.  Any failure to disclose information creates suspicion and may cause unnecessary litigation.  When a case ends up in court, the fiduciary’s failure to disclose is emphasized and often used as a basis for liability for unexplained activities.   

Colorado law provides certain requirements to ensure that beneficiaries are informed and able to understand and enforce their rights in a trust or estate. 

Regarding trusts, Colorado imposes mandatory duties upon trustees to register a trust (Colo. Rev. Stat. § 15-16-101 et. seq.) and to respond to a beneficiary’s request for information. Colo. Rev. Stat. § 15-16-303.  Subsection (1) of Colo. Rev. Stat. § 15-16-303 arguably imposes an affirmative duty to keep the beneficiaries reasonably informed of the trust and its administration regardless of whether there has been a request.  The trust document may impose additional requirements upon the trustee.

There are several disclosure requirements for personal representatives as well.  For example, within 30 days of appointment, a personal representative must send an information of appointment to all heirs and beneficiaries. Colo. Rev. Stat. § 15-12-705.   The personal representative must also complete an inventory (JDF 941) and send it to interested persons who request it or file it with the court. Colo. Rev. Stat. § 15-12-706.  In addition, the personal representative must complete an accounting (JDF 942). Colo. Rev. Stat. § 15-12-1001 et. seq. 

The contents and requirements of an accounting are often the subject of disputes.  We see everything from chicken scratch and piles of unorganized receipts to a voluminous, detailed professional accounting (typically created by corporate fiduciaries). 

Rule 31 of the Colorado Rules of Probate Procedure provides detail regarding the contents of an accounting.  Generally, “[a]ll required accountings shall show with reasonable detail the receipts and disbursements for the period covered by the accounting, shall list the assets remaining at the end of the period, and shall describe all other significant transactions affecting administration during the accounting period.”  The balance sheet included with an accounting should accurately reflect the assets on hand and should tie together from year to year.

Rule 31 also provides examples of forms that would be considered acceptable as to both content and format, including, but not limited to, the 1984 version of the Uniform Fiduciary Accounting Standards as recommended by the Committee on National Fiduciary Accounting Standards.  You can view the 1984 version of the Uniform Fiduciary Accounting Standards here.

The Uniform Fiduciary Accounting Standards were developed to try to standardize the meaning of “fiduciary accounting” across the country.  The standards provide very useful detail and information regarding the contents of accountings, including a model estate accounting and a model trust accounting.

In sum, trustees and personal representatives should establish a habit of keeping an accurate record of their activities because they could be called upon to provide information at any time.  A fiduciary’s failure to disclose or account raises suspicion, often times unnecessarily, and could create liability for the fiduciary for activities that are unexplained.

August 19, 2013

Charities are Beneficiaries Too!

by Jody H. Hall, Paralegal

“No, you cannot have it.  The trust is a private document” – Well, maybe, but not to the exclusion of the beneficiaries, and I mean ALL of the beneficiaries, named in that testamentary instrument.

Prior to returning to Colorado a few months ago, I worked in the Legal Department for a national charity where the responsibility of my team (totaling more than 8 attorneys, paralegals and staff) was to represent the charity’s interests in trust and estate matters around the country.

Coming from a background as a trusts and estates paralegal for well-respected law firms, I was absolutely shocked at the number of times that attorneys or fiduciaries (both professional and individual) would respond in the negative to a request for a copy of the will or trust or financial information regarding the gift of which we had just received notice.  There seemed to be this prevailing attitude that, because we were a non-profit organization, we would simply take whatever we were given or what was left over and be grateful for it, even in large trusts or estates where the designated gift was a portion or entirety of the residuary estate.  Unfortunately there was not a consistent understanding that if Charity XYZ and Cousin Sue are each to receive one-half of the residuary estate, they need to be treated equally.

Most charities do not intend to be adversarial or difficult.  Any money spent on legal fees reduces the ultimate charitable gift of the donor; however, they have a fiduciary obligation to the ultimate beneficiaries of their particular mission to ensure they receive everything to which they are ENTITLED!  In Colorado, that means a copy of the terms of the trust which affect the interest; other jurisdictions require a complete copy of the instrument, including codicils and/or amendments.  Almost every jurisdiction requires providing at least some information about the assets or accountings.

As with many things in life, upfront communication is usually the best policy.  My experience working for a “professional beneficiary” has reinforced and taught me several things about good estate and trust administration communications.  Provide an initial notification as soon as possible at the beginning of the trust or estate administration.  Provide periodic updates.  If there are assets that may take some time to sell, litigation or any other factors that may delay the distribution, let your contact know and they will calendar their system accordingly.  I know that I was less likely to question or challenge things when I received regular contact from the attorney or fiduciary.

So if the Decedent has been deceased for several years and you are just now sending a check for several hundreds of thousands of dollars as their first notification of the gift under a will or trust, do not be surprised if the charity requests additional information (including, but not limited to, the testamentary documents, an inventory or list of assets and an accounting) before signing a waiver or release.  After all, charities are beneficiaries too!

August 12, 2013

Description or Condition?

by Kelly Cooper

Lawyers that regularly litigate in the probate world always have an improbable story to tell.  Here is one of those stories that ended up in front of the North Dakota Supreme Court last year: 

A couple, Lee and Robyn, were engaged and planned to be married on July 18, 2009.  On June 26, 2009, Lee and Robyn signed a prenuptial agreement that required Lee to make gifts to Robyn and her daughter upon his death. 

Also on June 26, 2009, Lee executed a Will that contained the provisions to comply with the requirements of the prenuptial agreement.  The Will gave property to Robyn, describing her as “my wife, Robyn.”  The Will also stated, “My spouse’s name is Robyn Risovi and all references in this Will to “my spouse” are to her only.”  However, a footnote followed stating, “This Will has been prepared in anticipation of the upcoming marriage of …Lee Paulson and Robyn Risovi set for July 18, 2009.” 

Lee died on July 15, 2009 – three days before the wedding. 

Before you read any further, answer this question: should Robyn receive the gifts under the Will even though she was not yet Lee’s wife?

Technically, one of the questions before the North Dakota Supreme Court was whether the term “wife” being used to describe Robyn in the Will resulted in a conditional gift or whether the term “wife” was a merely a description.  In addition, the North Dakota Supreme Court had to determine whether the prenuptial agreement, which was not effective since the marriage did not occur before Lee’s death, had any impact on the interpretation of the word “wife” in the Will. 

The North Dakota Supreme Court held that the Will was unambiguous, the term “wife” was only descriptive, and ordered distribution to Robyn.  The Court held the prenuptial agreement had no effect on the interpretation of the Will for a variety of reasons.

This is just one more example of the ways that the best laid plans are derailed by unexpected events.

August 5, 2013

Real Lessons From the Gandolfini Will?

by C. Jean Stewart

In the six weeks since the death of Soprano’s actor, James Gandolfini, the web-based criticism of his will that was lodged in the New York Surrogate’s Court last month has exceeded the entire analysis of his career as Tony Soprano or genuine expressions of sympathy on his untimely death while in Italy with his son—maybe I’m just reading the wrong posts?

Much of the commentary is highly sensationalized, presumably to draw the readers’ attention to the pages where advertisements lurk, and does little to advance the dialogue about sound and sensible estate and tax planning.  The small part of the plan that is actually public, a brief will, has been described as “clumsy,” a “disaster,” and “a catastrophe” by critics who reveal how little they knew about the man, his motives or his assets.

I think there are some real lessons for the public about the actor’s death and about the small part of his estate plan that was published on the world-wide web:

  1. Death can be unexpected and untimely; take steps to prepare.  Rather than join the so-called “experts” who declared the Gandolfini will a calamity of epic proportion, I prefer to think that a busy father, who had substantial wealth and a promising future, the parent of two young children with different mothers, and a penchant for rich food and Italian wine, both engaged an attorney to prepare trusts and a will for his signature and then signed them.  Too much of the estate and trust litigation we see these days arises from the sheer neglect of those important issues in our clients’ lives.
  2. Identify a Client’s Intent and Express it Properly. One of the most common errors estate planners make is failing to learn enough about their clients’ lives, interests, assets, concerns and purposes in undertaking estate planning.  This is abundantly evident in the commentary expressing how calamitous the Gandolfini plan is or will be by people who have no apparent knowledge of his assets, his goals or his intent.  When we purport to be “experts in the abstract” we are doing a disservice to potential clients who come to believe they do not need to give actual or factual information to buy an estate plan—after all it can be done over the internet!  One commentator, after roundly criticizing Mr. Gandolfini’s attorney, suggested that a better plan than Gandolfini’s could have been accomplished by a Do-It-Yourself kit obtained online.
  3. Buy Life Insurance When You Can Get It. While we should all be skeptical about what we read in the popular press, there are reports that Mr. Gandolfini had set up a life insurance trust and funded it with a policy in excess of $7.5 million for his young son.  Depending on a lot of circumstances, this may have both avoided some estate taxes and provided a source of liquidity, and may serve as a long term vehicle for support and protection of the young man.  In any event, the purchase of life insurance while it’s available and affordable is a lesson in estate planning that is wise to note, even for clients whose wealth does not justify use of a trust to own it. 
  4. Don’t Over Sell Privacy. It’s been interesting to read criticism about the public aspects of part of the Gandolfini estate plan—the will—from people who make their living inquiring into and publicly criticizing the behavior of others.  Could Mr. Gandolfini have executed this part of his plan in a more private way? Probably yes.  Do trusts ever become public and subject to review and criticism?  Again, yes.  Just a few months ago, I blogged about another famous entertainer’s estate in that is in litigation and the public scrutiny his will and trust had suffered: http://www.fiduciarylawblog.com/2013/03/i-feel-good-settlement-suffers-a-setback-.html#more  
  5. Keeping Taxes in Perspective. We don’t know and we may never know what motivated James Gandolfini and his legal advisor to make these choices.  It is possible that some of the federal, New York and Italian taxes that may ultimately be paid could have been avoided but it will always be an abstract issue of discussion.  Sophisticated and experienced estate and trust lawyers would be wise to use this sad circumstance as an opportunity to counsel with individual living clients who are still able to engage in thoughtful and informed discussions leading to appropriate decisions and implementation of plans that meet their needs and address their concerns.