Trust Disclosure Requirements and Quiet Trusts

by Carol Warnick

The Uniform Trust Code and the Restatement (Third) of Trusts both follow the presumption that trust beneficiaries should be generally kept aware of the existence of the trust, their status as beneficiaries, and their right to ask for (and receive) further information about the trust and their rights as beneficiaries of the trust. Both also require accountings, at least upon request.

More than two-thirds (2/3) of states in the United States have adopted some form of the Uniform Trust Code as of this writing, but many states have not adopted the disclosure provisions from the Uniform Act. This reflects the feeling voiced by many trust creators that letting a beneficiary be aware of the wealth in a trust set up for the beneficiary’s benefit can be a disincentive for a beneficiary to make their own way in life. This is especially a concern if the beneficiaries are young, or even older beneficiaries that have proclivities towards spending. Many trust creators are also concerned because the sub-trusts they set up for their children don’t have identical provisions, therefore they don’t want their children to know about the provisions in their siblings’ sub-trusts. Read more

Why Trust Situs is Important

by Richard Kiely

When does a trust’s situs, also known as principal place of administration, move?  What is enough to trigger a move?  Should a trustee be concerned about their trust’s situs?  These are all great questions that often get overlooked in the years and decades after a trust is created and well into its administration by a trustee.

Trust situs is an important issue for several reasons.  Situs can dictate which state’s income tax applies, e.g., California vs. New York vs. Wyoming; situs is a factor in determining what law governs the administration of the trust; and situs often determines where a trustee or beneficiary might seek judicial relief.  Accordingly, determining and possibly relocating trust situs is a significant decision for a trustee’s consideration. Read more

Discounted Assets and Funding Challenges in Estate Administration

by Kami Pomerantz

Estate of Miriam M. Warne, T.C. Memo 2021-17 (February 18, 2021)  (“Warne”), a recent Tax Court case, illustrates a potential mismatch between the value of an asset for estate tax purposes and the value of the asset for purposes of the marital or charitable deduction from estate tax.  This mismatch can lead to a phantom loss of estate value for purposes of such deductions and cause an inadvertent estate tax surprise.  Although this mismatch can be avoided, it requires those drafting specific gifts and administering an estate to choose assets carefully when making bequests and funding decisions.

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What Happens When a Settlor Loses Capacity?

by Richard Kiely

As our population ages, trustees of revocable trusts will be faced with an increasingly common predicament: what happens after my settlor loses capacity?[1]  This question gives rise to many other questions – Is the trust now “irrevocable”? What duties do I owe and to whom? What if the loss of capacity is only temporary?

Before considering these questions, it’s important to first understand a trustee’s duties under a revocable trust before the loss of capacity.  When a settlor has capacity, the “rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.”  Colo. Rev. Stat. § 15-5-603(2).  This small sentence has big consequences. Read more

Freirich v. Rabin – Confidentiality and Attorney-Client Privilege After Death

by Richard Kiely

In the midst of a global pandemic and a presidential election, the Colorado Supreme Court still found a way to make news within the legal community by addressing the application of a lawyer’s duty of confidentiality and the attorney-client privilege after the death of a client.

For some time now, practitioners have known that the attorney-client privilege and duty of confidentiality both survive a client’s death.  Wesp v. Everson, 33 P.3d 191, 194 (Colo. 2001) (“[t]he attorney client privilege generally survives the death of the client.”); Colo. Bar Ass’n Ethics Comm., Formal Op. 132 , at 1 (2017) (“A lawyer’s duty of confidentiality continues after the death of a client.”)  However, until Freirich v. Rabin, 2020 CO 77, the Colorado Supreme Court had never addressed who holds such privileges and how they are waived.  In Rabin, the Court held a deceased client’s legal files belong to the lawyer except for “documents having intrinsic value or directly affecting valuable rights, such as securities, negotiable instruments, deeds, and wills.”  The Court further held that the decedent, and not the personal representative, holds the attorney-client privilege after death.  However, by appointing a personal representative, the decedent impliedly waives the attorney-client privilege and duty of confidentiality as “necessary for the administration of the estate.” Read more

What Law Governs Your Trust?

by Richard G. Kiely

Now more than ever, the situs and principal place of administration of a trust has become a fluid concept.  Trustees change, move, or open and close offices.  As situs changes, the question often becomes “what law governs the meaning and effect of terms of the trust?” Fortunately, the Colorado Uniform Trust Code (CUTC) provides a clear answer to this question — “it depends.”

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A Prudent Investor Reminder

by Richard G. Kiely

Over the last several weeks, financial markets have seen some of the largest swings in history, and as a result, fiduciaries have seen dramatic shifts in the value of trust investments.  Accordingly, fiduciaries should take a moment to revisit the Prudent Investor Rule as they look to manage risk and beneficiaries’ concerns. 

The Prudent Investor Rule requires a trustee to “invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.”  Colo. Rev. Stat. § 15-1.1-102.  The Prudent Investor Rule incorporates elements of Modern Portfolio Theory by requiring diversification of trust investments (absent special circumstances) and further emphasizing that “[a] trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.”  Colo. Rev. Stat. § 15-1.1-102 & 103.

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When are Termination Fees Reasonable?

by Rich Kiely

Professional trustees and financial institutions acting as trustees often include a “termination fee” as part of their published fee schedules.  Contrary to the name’s suggestion, a trustee might charge the fee not only at trust termination but also upon the transfer to a successor trustee after the original trustee has resigned or been removed.  Even when fully disclosed, a termination fee often comes as a surprise to beneficiaries, who view the fee as unjustified and unfair, making the trustee’s termination fee a hotly litigated and contested issue.

As with other types of compensation received by a trustee, the overriding consideration when charging a termination fee is the reasonableness of the fee in light of all relevant facts and circumstances.  Colorado statutes and official comments to the Uniform Trust Code indicate that a trustee should consider, among other things, the following factors when charging a termination fee:

  • whether the trust authorizes a termination fee;
  • whether the published fee schedule specified how and when a termination fee would be charged;
  • the complexity and amount of work required to be performed;
  • customary fees and practices in the community; and
  • the reasonableness of the trustee’s overall compensation, including the termination fee.
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Wyoming Creates a New Chancery Court Which Will Hear Trust Cases

by Carol Warnick

Wyoming has created a chancery court which will be authorized to hear cases in fifteen (15) specific areas, including cases alleging breach of fiduciary duty and transactions governed by the Wyoming Uniform Trust Code, in addition to hearing business disputes.  This represents a significant change in the way many trust disputes, as well as business disputes, will be handled in Wyoming. 

Effective March 15, 2019, the special court of limited jurisdiction, called the Chancery Court of the State of Wyoming, was authorized to assist in the expeditious resolution of disputes involving commercial, business, trust and similar matters.  It is directed “to employ nonjury trials, alternative dispute resolution methods and limited motions practice and shall have broad authority to shape and expedite discovery as provided in the rules adopted by the supreme court to govern chancery courts.”  WYO. STAT § 5-13-115 (a). 

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No Contest Clauses – Not Just for Wills

by Matthew Skotak

Fiduciary litigation continues to grow and often times outpaces the development of case law regarding the myriad of issues that arise in estate and trust disputes.  Historically fiduciary litigation involved disputing family members or changes in family circumstances.  However, another frequent source of litigation is the estate planning documents themselves.  For this reason, estate planners often include a no contest clause, or in terrorem clause, in a will or trust as a means of deterring feuding beneficiaries from challenging the validity of the instrument; yet, enforcement of these no contest clauses carries its own burden.

A no contest clause is more frequently contained in a will, although it can also be prudent to include these provisions in trusts – especially when the underlying concern is to discourage litigation over the decedent’s estate plan by disinheriting a person who unsuccessfully contests the will and/or trust.  The enforceability of these provisions varies from state to state; however, Colorado has determined that a no contest clause is valid when the contesting party lacks probable cause to bring their challenge.  See Colo. Rev. Stat. §§ 15-11-517, 15-12-905.  Read more