Monthly Archives: September 2014

September 29, 2014

Directed Trustees

by Rebecca Klock Schroer

Colorado recently enacted a set of statutes regarding directed trustees, with an effective date of August 6, 2014.  Colo. Rev. Stat. § 15-16-801 et. seq.   A directed trustee arrangement allows for the division of obligations and liabilities between two or more fiduciaries. 

There are many circumstances where a directed trustee arrangement could be beneficial.  For example, a settlor could appoint a corporate trustee as trustee of a trust and appoint a family member or other individual as a trust advisor to make certain decisions.  Colo. Rev. Stat. § 15-16-803 lists possible duties and powers of a trust advisor and includes:

(a) The exercise of a specific power or the performance of a specific duty or function that would normally be performed by a trustee;

(b) The direction of a trustee’s actions regarding all investment decisions or one or more specific investment decisions; or

(c) The direction of a trustee’s actions relating to one or more specific non-investment decisions, including the exercise of discretion to make distributions to beneficiaries.

The trust advisor can make decisions regarding specific issues, such as investments or distributions, while the corporate trustee retains the remaining obligations of a trustee. 

It is important for estate planners to consider the directed trustee statutes when drafting estate planning documents.  The statutes provide primarily default rules that can be altered by the provisions of a governing instrument.   For example, Colo. Rev. Stat. § 15-16-804 provides that the provisions of a trust governing removal of a trustee will also govern the removal of a trust advisor. 

A directed trustee arrangement is different than trustee delegation and different than the relationship between co-trustees.  When a trustee delegates duties to others, the trustee has a duty to monitor and is potentially liable for the actions of the person to whom the trustee has delegated.  A co-trustee retains liability for all trustee duties and also potential liability for the actions of a co-trustee.  Under a directed trustee arrangement, a trust advisor can take on certain duties and the trustee does not have a duty to monitor or any liability for the actions of the trust advisor.  In addition, the trustee and trust advisor have a duty to inform each other only to the extent necessary to fulfill their duties.  This arrangement makes it much easier for corporate trustees to enter into a trustee/trust advisor relationship without having to worry as much about liability.

Hopefully the flexibility and clarity of the directed trustee statutes will encourage more trusts to be administered in Colorado.

September 15, 2014

Your Fiduciary Duty of Loyalty

by Elizabeth Meck

The Fiduciary Law Blog recently posted an article in which we observed that “fiduciary” is a vague term encompassing many different people and several different relationships. Under Colorado law, a fiduciary includes, without limitation, a trustee of any trust, a personal representative, guardian, conservator, receiver, partner, agent, or “any other person acting in a fiduciary capacity for any person, trust, or estate.” Colo. Rev. Stat. § 15-1-103(2).

Any fiduciary must abide by the duties and obligations generally known as “fiduciary duties,” which are among the highest duties under the law. This post is the first in a short series in which we will discuss the fiduciary duties applied to trustees, when it may be appropriate for a trustee to delegate certain duties, and a trustee’s potential liability for breaching these important duties.

In the context of a trust, and as stated in the Restatement (Second) of Trusts § 2, a fiduciary relationship with respect to property arises out of the manifestation of an intention to create the fiduciary relationship and subjects the trustee “to equitable duties to deal with the property for the benefit of another person.”

The trustee’s most basic function is to hold title to and manage trust property pursuant to the terms of the trust instrument, which he must do with the utmost loyalty, good faith and honesty. Generally, the fiduciary duties applicable to a trustee are: the duty of loyalty, the duty to exercise care and skill in managing the trust assets and administering the trust, and the duty to remain impartial to all beneficiaries. This post will focus on the duty of loyalty.

The duty of loyalty, perhaps the broadest of the fiduciary duties, has been described as “inherent” in the trust relationship. George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 543 (2d rev. ed. 1980). This duty requires the trustee to remain loyal to the beneficiaries of the trust in all aspects of trust administration. Restatement (Second) of Trusts § 170.1 Fundamental to the duty of loyalty is the obligation to adhere to the terms of the trust instrument itself and to undertake all actions in accordance with applicable law. Restatement (Third) of Trusts § 76; Restatement (Second) of Trusts § 169.

As defined in Scott on Trusts, the trustee’s fiduciary duty of loyalty is the “duty of a trustee to administer the trust solely in the interest of the beneficiaries.” Austin W. Scott & William F. Fratcher, Scott on Trusts § 170 (4th ed. 1987) (emphasis added). A trustee, therefore, “is not permitted to place himself in a position where it would be for his own benefit to violate his duty to the beneficiaries.” Id. Under the duty of loyalty, the trustee must refrain from engaging in any act of self-dealing or conflicts of interests that may result in increased benefit to himself. Such transactions would constitute a breach of the trustee’s duty of loyalty, may expose the trustee to personal liability, and may be voided by the beneficiaries. See Restatement (Second) of Trusts § 170 cmt. b.

Further, the duty of loyalty requires the trustee to “communicate to [all beneficiaries] all material facts” in connection with the administration of the trust. Restatement (Second) of Trusts § 170. Failure to inform beneficiaries of important decisions or material facts may not only constitute a breach of the duty of loyalty, but frequently creates feelings of distrust toward the trustee. It is important, therefore, for the trustee to remain transparent, which we discussed in a prior blog post.

The duty of loyalty applies to the administration of a non-charitable trust as well as charitable trusts. This is the case even though a charitable trust may exist perpetually. A trustee of a charitable trust must administer the trust solely in the interests of effectuating the trust’s charitable purposes. See Restatement (Second) of Trusts § 379 cm. a.

As stated above, the duty of loyalty is broad and requires the trustee to regularly ensure that he is acting solely in the best interest of the beneficiaries. It is wise for any trustee to step back occasionally to make sure that his actions as trustee are taken in accordance with the duty of loyalty.

In the next blog entry in this series, we will discuss the duty of the trustee to exercise care and skill in the management of trust assets and administration of the trust.

1For further discussion on the duty of loyalty, see Austin W. Scott & William F. Fratcher, Scott on Trusts §§ 169-186 (4th ed. 1987); and George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 543-543(V) (rev. 2d rev. ed. replacement vol. 1993).

September 3, 2014

Robin Williams Got It Right

by Kelly Cooper

The popular press is always full of cautionary tales about celebrities and their estate plans (see our previous post on Philip Seymour Hoffman).  These stories make it seem that more celebrities get estate planning wrong then get it right.  However, it appears that Robin Williams did take several steps to get his estate plan right before his untimely death. 

Williams created a revocable living trust.  Since trust documents are not part of the public record like a will, we may never know who Williams gave his assets to and how those assets will be handled (in a trust, outright gifts, etc.).  The living trust will help protect Williams’ legacy and his family’s privacy (assuming there is no litigation or disclosure by those with knowledge of the plan).

In addition, living trusts help to avoid probate if they are properly funded.  In California, where Williams lived, the probate process can be expensive due to fees for the attorney and executor that are based on the value of the assets going through probate in addition to appraisal fees and court costs.  If Williams transferred all of his personal assets to the living trust prior to his death, he will have helped to avoid these expenses.

Williams also appears to have created a trust to hold his real estate in California (estimated equity of $25 million) and another trust to benefit his children (value unknown).  While it is not known whether Williams created these trusts to help reduce his estate tax costs, it is possible that he did so.  This uncertainty is because the terms of these trusts remain private.

I hope that Williams’ family benefits from his planning and foresight and that other celebrities take notice.