Category Archives: Administration Expenses

September 26, 2017

Fifty Ways to Leave Your Lover (or Fifty Ways to Plan, Administer and Litigate Estates)

by Carol Warnick

As the old song by Paul Simon contemplates, there are fifty ways to leave your lover, and there are also fifty ways to plan, administer and litigate estates and trusts.  I have recently become aware of various situations in which attorneys assume that because things are done a certain way in the state in which they practice, they are done the same way in other states.

I am licensed in three states, Colorado, Utah and Wyoming, and deal regularly with the significant differences between them.  For example, Colorado tends to use “by representation” in dealing with passing assets down the generations, but Utah and Wyoming both use “per stirpes.”  Read more >>

July 5, 2017

Electronic Wills

by Morgan Wiener

As regular readers of this blog know, one of our favorite topics is digital assets, including estate planning for digital assets.  Today, we’re taking a slightly different focus and discussing developments in digital estate planning, more commonly known as electronic wills.

One of the more recent developments in estate planning is the concept of electronic wills. In general, an electronic will is one that is signed and stored electronically. Instead of signing a hard copy document in ink, the testator electronically signs the will, and it is also signed by witnesses and notarized electronically.  Not surprisingly, companies like LegalZoom are very interested in this topic.

Read more >>

April 10, 2017

Contracts to Make Wills or Trusts

by Carol Warnick

Does the fact that a husband and wife create “mirror-image” wills or trusts mean that they have entered into a contract with their spouse to maintain the dispositive provisions in the document?  The law in Colorado is very clear that no contract exists merely because the documents are “mirror-image” or reciprocal.

Pursuant to Colo. Rev. Stat. § 15-11-514, a contract to make a devise may be established only by:

(i) provisions of a will stating material provisions of the contract, (ii) an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed by the decedent evidencing the contract. The execution of a joint will or mutual wills does not create a presumption of a contract not to revoke the will or wills. (emphasis added).

Read more >>

November 7, 2016

Nuances of Estate Tax Lien Priority

by Margot S. Edwards

In many cases, estate tax obligations have priority over the creditors of an estate, but this general rule has exceptions. It is key for a fiduciary to understand when a creditor may have priority over estate taxes, in order to ensure the fiduciary is properly carrying out its duties to the estate’s creditors.

The primary exception to the general rule is that secured creditors often have priority over an estate tax lien (I.R.C. § 6323). One common example of a secured creditor with priority over estate tax obligations is a lender who provided a purchase money mortgage, which is properly secured by real estate. A secured creditor may have priority over an estate tax obligation if the debt is secured by a security interest that was perfected under applicable state law prior to the decedent’s death.  Read more >>

June 6, 2016

Recent IRS Statistics

by Kelly Dickson Cooper

For our litigation clients, a fiduciary’s failure to consider the tax impact of their actions can be the genus for litigation and anticipated tax savings can be the engine that drives a settlement.  For our fiduciary clients, it is important for them to ensure that transfer taxes are minimized for the benefit of their beneficiaries.  For our planning clients, tax planning is a key component in determining the best structure for their wealth transfer planning.  Given the importance of transfer taxes in our practice, we wanted to highlight a few items from the IRS 2015 Data Book relating to estate and gift tax returns:

Number of Tax Returns filed during 2015

  • 36,343 estate tax returns (545 from Colorado)
  • 237,706 gift tax returns (4,492 from Colorado)

Amounts Collected

  • Estate tax returns  – $17,066,589 collected
  • Gift tax returns – $2,052,428 collected

Percentage of 2014 Tax Returns Audited in 2015

  • 7.8% of all estate tax returns
    • Gross estate less than $5 million – 2.1% audit rate
    • Gross estate greater than $5 million but less than $10 million – 16.2% audit rate
    • Gross estate greater than $10 million – 31.6% audit rate
  • 0.9% of all gift tax returns

Results of Audits

  • 22% of estate tax returns examined had no change
  • 34% of gift tax returns examined had no change
  • 70 estate tax returns and 135 gift tax returns had unagreed recommended additional tax
  • 543 estate tax returns and 43 gift tax returns resulted in tax refunds

February 29, 2016

The High Cost of Death

by Morgan Wiener

How many of you have heard your clients complain about the various fees and costs they have to pay after the death of a loved one or the expense of going through the probate process? Well, the next time you hear someone complain, you might want to tell them to be glad they don’t live in England! (Full disclosure: I’ve spent time living and working in England, and it’s a delightful place, even if a little pricey.)

The Financial Times recently reported on a proposal to raise the cost of obtaining probate in England and Wales. Under the proposal, the fees for obtaining probate through the courts, which the Financial Times states is necessary for personal representatives to be able administer an estate, will increase from £155 (or £215 if a lawyer is used) to up to an astonishing £20,000 – or approximately $28,000! The proposed fees would be charged on a sliding scale so that estates valued up to £50,000 (approximately $70,000) would pay no fees, and estates valued above £2 million (approximately $2.8 million) would pay £20,000. These proposed fees would be in addition to any inheritance tax that is owed.

The revenues raised from the proposed fees would go towards the court system and are expected to raise up to £250 million per year.

Practitioners in England and Wales are concerned that the new fees would be especially difficult for cash-poor estates to pay. As with many estates in the United States, the value of many estates in England and Wales is largely comprised of real property. With property prices being so high – the average home price in London is a reported £536,000 – many relatively modest estates would be subject to significantly higher fees under the new proposal and may not have the cash to pay them.

The Ministry of Justice for England and Wales is continuing to consider the proposal and is soliciting comments through April 1. For more information from the Financial Times, click here.

December 14, 2015

Now There Are Tax Transcripts In Lieu of Estate Tax Closing Letters

by Carol Warnick

The Internal Revenue Service (“IRS”) announced earlier this year that it would no longer routinely send out an estate tax closing letter and that such letters would have to be specifically requested by the taxpayer. The change in procedure was effective for all estate tax returns filed after June 1, 2015.

Previously, an estate tax closing letter was evidence to show that the IRS had either accepted an estate tax return as filed, or if there has been an audit, that final changes had been made and accepted. Receipt of an estate tax closing letter has never meant that the statute of limitations on the return has run, but it has given comfort to the estate administrator that he or she could make distributions and/or pay creditors knowing that the chances of further IRS review of the return was not likely. Many personal representatives and trustees have made it a practice to wait for such a closing letter before funding sub-trusts or making any significant distributions.

On December 4, 2015, the IRS announced that “account transcripts, which reflect transactions including the acceptance of Form 706 and the completion of an examination, may be an acceptable substitute for the estate tax closing letter.”   Such account transcripts will be made available online to registered tax professionals using the Transcript Delivery System (TDS). Transcripts will also be made available to authorized representatives making requests using Form 4506-T. They still must be requested, but may be easier to obtain than an estate tax closing letter.

For further instructions, here is the link to the information on the IRS website: http://tinyurl.com/plhb6f6.

October 26, 2015

Take Time Upon Termination

by Rebecca Klock Schroer

When a trust terminates, beneficiaries are understandably anxious to receive final distributions.  They often do not understand that there is a period of time after a trust terminates to allow the trustee to wind up the administration. 

For example, we recently represented the trustee of a very old trust that terminated on a date certain.  Upon termination, the remaining trust assets were to be distributed among many remainder beneficiaries.  After receiving several phone calls, we quickly learned that the beneficiaries expected to receive final checks on the termination date.  We explained that, as with all trust administrations, the trustee had to take several steps before issuing checks for the final distributions.

First, the trustee must complete a final accounting that separates income and principal.  This is necessary to determine the final distributions, particularly if the income beneficiaries are different from the remainder beneficiaries.  Next, the final expenses need to be estimated, so that the expenses can be prepaid or a reserve can be held back for future payment.  These expenses might include preparation of the final tax return, trustee fees and attorney fees. 

In Colorado, there is a statute that helps limit liability of a trustee that has issued a final accounting.  Colo. Rev. Stat. § 15-16-307 provides that a proceeding against a trustee must be commenced within six months of receipt of a final accounting showing that the trust is terminating. 

For additional security, the trustee often wants to obtain a release from each beneficiary prior to making the final distributions.  Otherwise, the trustee runs the risk of distributing the trust assets and having no assets remaining to defend a lawsuit.  If the beneficiaries refuse to grant releases, the trustee may want to seek judicial approval of the final accounting before making the final distributions. 

The law provides that the trustee may take a reasonable amount of time to wind up the trust administration. See § 1010 of Bogert’s Trusts and Trustees. In our experience, this can take from sixty days to several months or even longer depending on the facts and circumstances.  While it is understandable that beneficiaries are anxious to receive their distributions, they have to allow the trustee to properly finalize the trust administration.

June 24, 2015

Updates for fiduciaries from the IRS and Colorado

by Kelly Cooper

The IRS has stated that it will not issue closing letters for federal estate tax returns filed on or after June 1, 2015, unless one is requested by the taxpayer. The information provided by the IRS states that the taxpayer should wait at least four months after filing the return to request a closing letter. A closing letter indicates that the estate’s federal estate tax liabilities have been paid. While a closing letter is not a formal closing agreement, many fiduciaries wish to have a closing letter from the IRS before making final distributions and closing estates. For returns filed prior to June 1, 2015, please refer to the following document for guidance as to when a closing letter will be issued:

Frequently Asked Questions on Estate Taxes

Certain statutes in the Colorado Probate Code are subject to cost of living adjustments each year. The numbers for 2010-2015 can viewed here:

Cost of Living Adjustment of Certain Dollar Amounts for Property of Estates in Probate

February 2, 2015

Trustees Take Heed: Arizona Adopts the Fiduciary Exception to Attorney-Client Privilege

by Kelly Cooper

For trustees in Colorado, the question remains to what extent does the attorney-client privilege offer protection from disclosure of confidential communications between trustees and their attorneys in litigation with beneficiaries.  Despite the uncertainty in Colorado, several states and the U.S. Supreme Court have weighed in on this question and Arizona is the latest state to adopt the fiduciary exception to the attorney-client privilege.  Hammerman v. The Northern Trust Company, 329 P.3d 1055 (Ariz. App. June 3, 2014).

The Court of Appeals of Arizona held that a trustee’s attorney-client privilege “extends to all legal advice sought in the trustee’s personal capacity for purposes of self-protection.”  However, the Court also held that the trustee had an “obligation to disclose to Hammerman [beneficiary]  all attorney-client communications that occurred in its fiduciary capacity on matters of administration of the trust.”

These standards will inevitably give rise to many questions depending on the facts and circumstances of the trust administration at issue, but one will likely come up over and over again.  At what point will a trustee be permitted to seek advice for self-protection.  Is a question from a beneficiary enough?  Does a lawsuit have to be filed?  A demand letter sent?  Can the trustee use trust funds to pay for the advice?

In a departure from other courts, the Court of Appeals of Arizona held that the trustee’s attorney-client privilege does not end merely because the advice was paid for out of trust funds.  (For example, the U.S. Supreme Court noted that the source of payment for fees is “highly relevant” in identifying who is the “real client.”  United States v. Jicarilla Apache Nation, 131 S. Ct. 2313, 2330 (2011).  The Delaware Court of Chancery found that the source of payment was a ““significant factor… [and] a strong indication of precisely who the real clients were.”  Riggs National Bank of Washington, D.C. v. Zimmer, 355 A.2d 709, 712 (Del. Ch. 1976).)

Without any clear guidance in Colorado, it is important for trustees (and their counsel) to keep a close watch on future developments.