by Kelly Dickson Cooper
In my practice, I regularly answer questions regarding the permissibility and advisability of modifying irrevocable trusts. With the enactment of a decanting statute in Colorado in 2016, these types of requests will only increase. One of the major hurdles in modifying irrevocable trusts (and a trap for the unwary) is the potential tax consequences of a modification. We often have to consider estate tax inclusion issues, the possibility of the imposition of gift taxes due to the modification, and the potential loss of generation-skipping transfer tax exemption for a trust. Read more
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).
by Jody H. Hall, Paralegal
It is well documented that all of our lives have become more data-driven and we are practically tethered to our electronic devices. Therefore, it should not be surprising to realize that more and more of our assets, and those of our clients, have a digital component. What may be surprising, however, is just how much value we place on our digital assets. Surveys report that the average value of personal digital assets owned by individuals globally ranges from $35,000 – $55,000.
A few key words typed into any search engine, including a review of articles written on this blog, will provide a wealth of information on accessing digital assets, including digital assets in your clients’ estate planning documents, and safeguarding your digital assets inventory. However, after the client’s death, once we have a list of their digital assets, and have gained access those assets, it is prudent for the probate and trust practitioner to remember to value those assets. Read more
by Kelly Dickson Cooper
The rules and regulations surrounding the operation of family foundations contain traps for the unwary and prohibit self-dealing transactions. We regularly help families navigate the complex rules regarding self-dealing transactions for private foundations.
These self-dealing rules tripped up the Donald J. Trump Foundation, which has admitted that it has engaged in self-dealing. How do we know? A private foundation is required to file a Form 990-PF each year and that return requires a foundation to answer questions regarding its activities and transactions. The following question caused issues for the Trump Foundation: “During the year did the foundation (either directly or indirectly): Transfer any income or assets to a disqualified person (or make any of either available for the benefit or use of a disqualified person)? By answering “Yes,” the Trump Foundation has admitted that a self-dealing transaction occurred. The Trump Foundation’s Form 990-PF (and many other foundations’ returns) are available through www.guidestar.com.
by Jessica J. Smith
Charitable trusts are both valuable estate planning tools and excellent philanthropic devices. For instance, certain charitable trusts provide appealing tax benefits for donors creating charitable inter vivos trusts. While in most respects, charitable trusts are governed by the same state law concepts often discussed here on this blog (like fiduciary duty obligations for trustees), there are a few notable exceptions worth highlighting for anyone looking to take advantage of charitable trusts for estate or tax planning purposes.*
In general terms, a charitable trust is simply a trust that has a charitable purpose. See, e.g., Denver Found. v. Wells Fargo Bank, 163 P.3d 1116, 1125 (Colo. 2007) (“Instead of identifying a person or corporation as beneficiary, the settlor of a charitable trust must describe a purpose which is of substantial public benefit.”). Under Uniform Trust Code § 405, charitable purposes include “the relief of poverty, the advancement of education or religion, the promotion of heath, governmental or municipal purposes, or other purposes the achievement of which is beneficial to the community.” The Restatement (Third) of Trusts § 28 largely matches the UTC, although it is a tad more expansive. For instance, the Restatement includes the advancement of knowledge, rather than just education, in its definition of charitable purpose. The differences between the UTC and the Restatement, though, are slight.
by Matthew S. Skotak
You may have previously read on this blog about digital assets, the impact they have on the administration of trusts and estates, the need for fiduciaries to access digital assets, and the privacy concerns that come along with such access. In order to address these issues, Colorado recently enacted the Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”). This new act became effective on August 10, 2016 and can be found at C.R.S. § 15-1-1501 et seq.
RUFADAA is a significant leap by the State of Colorado to catch up to the digital age. Prior to the passage of the law, the pervasive use of electronic banking and investing has posed a problem for many fiduciaries. Without the receipt of paper statements, personal representatives, financial agents, trustees and conservators have had a difficult time locating an individual’s assets, sometimes leading to an exhaustive search of several banking and financial institutions before asserts are uncovered. Read more
by Carol Warnick
Will the estate tax be eliminated as part of the tax reform promised by the incoming administration? Unfortunately, my crystal ball is not working well and I don’t have an answer for that question. I would, however, like to share a bit of the tortured history of the estate and gift tax since the Civil War in the hope that it might give us some perspective when wondering what the future will bring.
A series of Acts between 1862-64 created an inheritance tax which helped finance the war effort. Rates were between .75% and 5% and there was an exemption of $1,000. In 1870 the inheritance tax was repealed. An estate tax was again instituted to fund a war effort in 1916, in response to World War I. The rates were between 1% and 10% and there was an exemption of $50,000.
by Kelly Dickson Cooper
Picture this: you are representing a beneficiary of a trust in heated litigation. The client is committed to the cause, but as time passes, the client stops returning your calls. Despite your best efforts, the client seems to have fallen off the radar screen completely. Late last year, the Colorado Ethics Committee provided guidance to attorneys who find themselves in this difficult situation.
Formal Opinion 128 states that if a client has gone missing since the representation began, the lawyer must take reasonable steps to locate the client, and, whenever possible, seek continuances of court deadlines, but still continue their efforts to contact the client. “Reasonable steps” may include hiring a professional investigator, searching public records, and/or contacting family or friends of the client. Read more
by Margot S. Edwards and Anne A. Zeckser
Due to recently proposed regulations to Section 2704 by the U.S. Treasury Department, high net-worth taxpayers and their advisors need to act now to evaluate the best course forward. The proposed regulations threaten to significantly curtail the application of discounts to intra-family transfers of entity interests, which impact key gift and estate tax planning techniques used for high net-worth individuals. For wealthy families and their advisors, these proposed regulations call to mind the flurry of wealth transfer planning activity that took place in late 2012. Advisors are anticipating a very busy fourth quarter working with clients to address the impact of the proposed regulations.
Who Should Act Now
In consultation with their advisors, the following taxpayers should look carefully at their assets to determine whether there are any opportunities to shift substantial value out of the taxpayer’s taxable estate before discounts effectively disappear:
- Taxpayers whose estates are subject to the imposition of estate tax
- Taxpayers who have historically made annual gifts of discounted business interests to family members or trusts
- Taxpayers who have been considering establishing a long term trust for family members to hold business interests
- Taxpayers who have an existing trust in place for family members
- Taxpayers who have a need for business succession planning
Next Steps – What to Do and When
The proposed regulations could become final and effective as early as late December 2016 (although a later effective date is more likely) and a hearing on these regulations is scheduled for December 1st. As a result, all family business owners and wealthy taxpayers should take this opportunity to meet with their team of advisors to review their wealth transfer plans and, if additional transfers are warranted, initiate that process as soon as possible.
The affected taxpayers should consider gifts or sales of discounted business interests to family members or trusts by the end of this year. However, it is important to note that there will likely be a 3-year-look-back on transfers. These taxpayers should also consider the transfer of discounted entity interests to a trust in exchange for a note or an annuity interest to preserve future planning opportunities. While it is unclear whether the IRS will require some sort of consistency of valuation for payment of promissory notes and annuity interests, there is the potential that payments could be made with undiscounted interests later, further enhancing the tax savings. Read more
by Jody H. Hall, Paralegal
As of Monday, August 7, 2016, practitioners can now search for probate and trust cases in the Integrated Colorado Courts E-Filing System (“ICCES”). In the past, Colorado probate estate and trust cases were only available for viewing by attorneys of record. If someone needed to determine if a case had been opened, he or she would need to contact the court clerk’s office and often pay a search fee. In the most recent release of ICCES, registered users can search to determine if a probate estate or trust matter has been opened; however, the documents themselves will only be available for online viewing to parties of record and to the Court.
Protective proceedings will remain a protected filing class and only attorneys of record will have access to those cases. An entry of appearance will need to be filed, and accepted by the court, in these matters to gain access.
All Public documents submitted in trust and estate cases prior to August 6, 2016, will be set to a document security type of Protected and not available for viewing unless counsel is of record in the case.
Click here to view the Probate Enhancements section of the Colorado Judicial Branch E-Filing News Newsletter, August 2016.