Category Archives: Fiduciary Duties

May 12, 2015

What Does It Mean To Be A Trustee?

by Carol Warnick

We are constantly surprised to realize that the normal, average trustee who is not a professional fiduciary doesn’t really understand what is required of him or her and often makes serious mistakes.  You would expect that someone taking over the role of being a trustee would inquire or do some type of research as to what is expected, but unfortunately many new trustees don’t seem to take the responsibility seriously enough, often with disastrous consequences.

The trustee stands in a special relationship with the grantor of the trust as well as to the beneficiaries.  This relationship is unique and the trustee should keep that in the forefront of his or her mind.  By appointing someone as trustee, the grantor is depending upon the trustee to both honor the provisions of the trust to the best of his or her ability, but also to respond to the needs  of the beneficiaries and to maintain their confidence and trust.  The trustee must be careful not to do anything which would benefit the trustee to the detriment of the beneficiaries or to ignore the duties and obligations of a trustee.  Thus the word “trust” inside the term “trustee” should not be taken lightly. 

The obligations of a trustee are defined not only by the trust agreement, but also by state law, some of which is statutory and some of which is common law.  State laws may differ from state to state, but some basic premises hold true wherever  a trust is being administered.  In general, these duties of a trustee are important and can result in litigation, removal, and potentially surcharge if the trustee ignores them.  

Some of the general duties of a trustee are set forth below, as taken from “What It Means to Be A Trustee:  A Guide for Clients,” published in the ACTEC Journal, Volume 31, No. 1, Summer 2005. 

  • Duty to Administer Trust by Its Terms.  The trust, including amendments,  provides a roadmap for the trustee and unless its terms are ambiguous, the trustee must follow its terms.  As mentioned above, state law will govern many areas where the trust is silent, so the trustee must be versed in the state law where the jurisdiction is administered. 
  • Duty of Skill and Care.  Skill, prudence and diligence — this is a high standard of performance — higher that one would be expected to follow if administering one’s own assets. 
  • Duty to Give Notice.  The trustee must be familiar with the language of the trust as well as state law to determine when he or she must give notice to beneficiaries, or perhaps a co-trustee.  Some examples requiring notice to certain individuals are resignation, delegation or designation of a successor trustee, rights of beneficiaries to withdraw principal at certain times, the naming of a professional investment advisor, of delegation of the investment function.
  • Duty to Furnish Information and to Communicate.  The trustee must keep the beneficiaries informed about the administration of the trust.  This may include information about investment performance, actions of the trustee or anything else reasonably requested by the beneficiary. 
  • Duty to Account.  The laws of most states require that the beneficiaries be given regular accountings reflecting the liabilities, receipts and disbursements of the trust.  The form and frequency varies from state to state or the language of the trust document. 
  • Duty Not to Delegate.  Generally, the trustee has the duty not to delegate acts requiring judgment and discretion (typically the trustee was chosen because he or she exhibited good judgment and sound exercise of discretion) unless specifically given that authority in the trust document or by statute.  The trustee may hire agents such as attorneys, accountants, investment advisors, etc. but the trustee should not blindly follow their advice.  The exception to that would be a Directed Trust, which is beyond the scope of this article
  • Duty of Loyalty.  The trustee has a duty to administer the trust solely in the interest of the beneficiaries.
  • Duty to Avoid Conflict of Interest.  The trustee should not use trust property for personal gain and should not use the trust assets in a manner that benefits the trustee personally.  The exception to this is when self-dealing provisions are written into the trust for the benefit of trustees who are also beneficiaries of the trust.  Even if such provisions are present, a trustee needs to be especially careful of self-dealing transactions and should consider appointing an independent trustee (if the trust or state law allows it) strictly for the purpose of authorizing such transactions. 
  • Duty to Segregate Trust Property.  The trustee must not co-mingle personal funds or any other non-trust funds with the assets of the trust.
  • Duty of Impartiality.  The trustee must treat all the beneficiaries impartially unless the trust itself instructs otherwise.  This becomes complicated when the trustee must balance the interests of the income beneficiaries with the interests of the remainder beneficiaries of a trust. 
  • Duty to Invest.  The trustee has a duty to invest the assets appropriately.  Unless otherwise specified, that includes a duty to diversify assets.
  • Duty to Enforce and Defend Claims.  The trustee must take reasonable steps to defend claims against the trust and to enforce claims the trust may have against others.  Part of the decision-making process in determining what is reasonable needs to be an assessment of the costs  of enforcing or defending versus the costs to the trust of not taking action on the claim.
  • Duty of Confidentiality.  The affairs of the trust should be kept confidential except with those who are by law “interested persons” such as the beneficiaries and co-trustees. The trustee should not disclose to third parties the identify or interests of the beneficiaries or the nature of trust assets, unless requested to do so by a beneficiary who may need certain information disclosed to a third party.  This duty of confidentiality also extends to personal things about beneficiaries that may come to the knowledge of the trustee in the process of administering the trust.

Any trustee paying close attention to the duties listed above will stand a much better chance of making the trustee experience a positive one and will be much more likely to avoid problems or lawsuits from beneficiaries. 

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. 

December 22, 2014

Updates on UFADAA

by Morgan Wiener

The Uniform Fiduciary Access to Digital Assets Act (“UFADAA”) is the Uniform Law Commission’s answer to the relatively new issues caused by the proliferation of digital assets (online bank accounts, social media accounts, computer hard drives, email, online photos, etc). UFADAA provides solutions to questions involving how fiduciaries can gain access to digital assets, what access fiduciaries may have to digital assets, and what fiduciaries may properly do with digital assets.

UFADAA is a new uniform act, it was adopted in its final form by the Uniform Law Commission in July 2014. Delaware is the only state that has adopted UFADAA so far, and the act will be effective in that state on January 1, 2015. Florida has also introduced legislation to adopt UFADAA.

In Colorado, the Trust & Estate Section of the Colorado Bar Association has been considering UFADAA and revisions to UFADAA so that it will better conform to existing laws and work with this state’s current framework for governing fiduciaries, trusts, and estates. Just this past week, the Statutory Revisions Committee of the Trust & Estate Section approved its final comments and proposed revisions to UFADAA. You can view the version of UFADAA approved by the Statutory Revisions Committee here. Although there are still a number of steps that must be taken before any version of UFADAA is enacted in Colorado, this is certainly a step in the right direction!

November 3, 2014

Fiduciary Duties of Employees

by J. Robert Smith

Most of us are familiar with the concept that a company’s officers and directors owe fiduciary duties to the company. In fact, most states have codified the fiduciary duties owed by officers and directors. It is also not surprising that upper level managers or those subject to employment agreements are often subject to certain fiduciary obligations. But what about “low-level” or “at-will” employees? I am referring to those non-management employees who are not subject to any employment contract or agreements and who can be terminated an anytime for almost any reason, with or without cause, and can likewise leave at any time and for any reason. Are these employees also subject to fiduciary duties? The answer is yes. In fact, many people are surprised to learn that employees, even “low-level” ones, owe fiduciary duties to their employers.

The rule that employees, including at-will employees, owe fiduciary duties to their employers arose out of the law of agency. Simply put, all employees are “agents” of their employers. And as agents, employees have a fiduciary duty to act loyally for the principle’s (the employer’s) benefit in all matters connected with the agency relationship. Restatement (Third) of Agency §8.01. As comment c to that section states:

All who assent to act on behalf of another person and subject to that person's control are common-law agents as defined in §1.01 and are subject to the general fiduciary principle stated in this section. Thus, the fiduciary principle is applicable to gratuitous agents as well as to agents who expect compensation for their services, and to employees as well as to nonemployee professionals, intermediaries, and others who act as agents.

Now that we know all employees owe fiduciary duties to their employers, what are those duties? Well, as the Restatement explained in §8.01, the duty centers on the duty of loyalty. In fact, Restatement (Third) §1.01 comment g explains that “as agents, all employees owe duties of loyalty to their employers.” But what does that mean?

In the employment context, aspects of the duty of loyalty include the duty that the employee will not compete with their employer, solicit the employer’s customers, clients or employees prior to the leaving the company, or use work time to further the employee’s own interests. It also includes the duty not to misappropriate confidential information or trade secrets of the employer by sharing that information with the new employers. In addition, the duty includes the duty to account for profits and to deal fairly with his or her employer in all transactions between them. It also includes the duty to disclose the existence of conflicts or adverse information to the employer. And this is true even if the employer is not harmed by the undisclosed adverse interest or information. This list is, of course, not exhaustive. There are certainly other situations that can arise in the employment context that obligates an employee to act in the best interests of the employer. Such situations are fact intensive and can depend on the nature of the trade or business.

One such situation that has often resulted in litigation is whether the employee breaches his fiduciary duty to his employer by secretly taking steps to set up a competing business, or seeking employment with a competitor, while the employee is still employed. There is clearly a conflict between preparing to compete, or preparing to work for a competitor, and the duty not to act in any matter that is adverse to the employer’s interest. Nevertheless, the majority of courts that have considered this issue have concluded that an employee is permitted to make preparations to compete with his or her employer while still employed. This is true even if a group of employees agree among themselves while still employed to start a competing business. The rationale behind such rulings is the need for courts to balance the employee’s interests and to promote free competition. See Maryland Metals, Inc. v. Metzner, 382 A.2d 564 (Md. 1978); Scanwell Freight Express Stl., Inc. v. Chan & DiMerco Express, 162 S.W. 3d 477 (Mo. 2005); White Cap Industries, Inc. v. Ruppert, 119 Nev. 126, 67 P.3d 318 (Nev. 2003). Thus, “the law allows employees a privilege to plan and prepare for competition in recognition of the ‘competing interest of allow allowing the employee some latitude in switching jobs . . . .’” Scanwell Freight, at 479. Of course, this privilege is not without limitations. Although an employee may prepare to compete with his employer while still employed, that employee – while still employed – cannot actively solicit an employer’s customers or employees to leave the company. Nor can the employee prepare to compete with his employer, or prepare to work for a competitor, during the time he or she is supposed to be working for his or her current employer.

An interesting corollary to the above privilege involves the situation where one employee knows another employee is planning on leaving the company to start a competing business. Does the first employee have a duty to disclose such information to the employer. As previously mentioned, employees have a duty to disclose information that that the employee knows is adverse to the employer’s business. Based on that rule, one would think an employee who knows another is about to leave and start a competing business would have a duty to inform their employer. But the likely answer is that the employee does not need to disclose such information. For instance, the Nevada Supreme Court ruled in White Cap Industries v. Ruppert, supra, that because an employee has the right to prepare to compete with his employer, there is no duty for an employee to report on the employee who is engaged in such activity. In other words, an employee does not breach his fiduciary duty to disclose information by refusing to tell the employer about another employee who is planning on leaving and competing.

It is also important to point out that resignation does not necessarily absolve an employee from his or her fiduciary duties. Some duties survive termination of the employment relationship. For instance, post-termination competition with the former employer may constitute a breach of fiduciary duty if it is based on information gained during the employment relationship. Therefore, employees should be careful after they depart from employment not to use such information to compete with their former employer.

In conclusion, unless otherwise altered, the relationship of employer and employee is one of agent and principal. As a result, employees have a duty of loyalty and if they act adversely to the employer, they breach their fiduciary duty. As the Restatement recognizes:

However ministerial or routinized a work assignment may be, no agent, whether or not an employee, is simply a pair of hands, legs, or eyes. All are sentient and, capable of disloyal action, all have the duty to act loyally.

Restatement (Third) §1.01 comment g.

October 27, 2014

Principal and Income Allocations — Attention to Detail

by Carol Warnick

I recently had the occasion to pull out some old CLE materials from 2001 after Colorado’s adoption of the New Uniform Principal and Income Act (UPIA).  That caused me to reflect on what has happened in the thirteen years since passage of the act in Colorado.  Unfortunately, there still seem to be individual trustees as well as attorneys and accountants who do not appreciate that the provisions of this act must be considered in determining such basic things as what is income and what is principal, unless that is clearly spelled out in the document.

Determinations of income and principal, in conjunction with the distribution provisions of the document, are critical to determining what each trust beneficiary is to receive.  The basic thrust of the UPIA is that the document will trump the UPIA rules, but the UPIA provides a set of default rules to make such determination if the trust is silent.  It also contains special rules for such things as depreciation expense, how to handle receipts from depleting assets such as mineral interests, and giving the trustee the power to adjust between income and principal under certain circumstances.     

A common mistake is to allocate principal and income based upon a recollection of what the UPIA says, or worse, how it was allocated for a previous client.  The first thing the trustee should do is to read the trust document because if the issue is discussed there, there is no need to look further.  However, most documents don’t go into the level of specificity in all areas as the UPIA does and therefore the practitioner must rely on the UPIA.  It is also important to read the correct state’s UPIA statutes as states have varied in their adoption of portions of the original uniform law.  Depreciation, for example, is one area that is treated differently by a variety of states. 

More and more trusts are spanning multiple generations and require trustees to manage trust assets for decades.  It is important to remember that a decision made today may be reviewed years later with 20/20 hindsight, when the cost of the trustee’s decision will have been compounding for years.  This means that decisions involving even low dollar amounts now can be subject to close scrutiny years later.  Trustees and their agents need to be fully aware of the provisions of the UPIA and make sure to follow them. 

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).

August 20, 2014

Are You a Fiduciary?

by J. Robert Smith

After reviewing the posts on this blog, I realized that we have not discussed what the term “fiduciary” means and who falls within that definition.  Perhaps it is because the word “fiduciary” encompasses so many different types of people and roles that actually identifying those who are fiduciaries can, at times, be difficult.  On the other hand, perhaps we have simply assumed that a fiduciary is self-explanatory. And it many instances it is. Most of us are familiar with the more obvious relationships that impose fiduciary duties: attorney/client, accountants/client, trustee/beneficiary, executor/heir, guardian/ward, real estate agent/client and corporate officer/shareholder. Yet there are many more relationships that give rise to fiduciary duties.  And often those relationships are unclear.  But given that this blog is brought to you by the Holland & Hart Fiduciary Solutions group, it only makes sense that we solve what it really means to be a fiduciary. 

Courts and commentators have repeatedly attempted to set forth a principle that would encompass all the relationships and situations imposing fiduciary duties. But so far, none of them seem to work.  One of the difficulties is that courts are continually finding ways to impose fiduciary duties on non-traditional relationships.  In fact, courts have found fiduciary relationships to exist between investment bankers/clients (see In Re: Daisy Systems Corp.,  97 F.3d 1171 (9th Cir. 1996)), priests/parishioners (see Doe v. Evans, 814 So. 2d 370 (Fla. 2002)), teachers/students (see Doe v. Terwilliger, 2010 Conn. Super. LEXIS 1597 (2010)) and spouses (see Williams v. Waldman, 108 Nev. 466, 772 (1992)).  As a result, the definition of fiduciaries is constantly evolving. As one commentator has pointed out, the fiduciary relationship is “one of the most elusive concepts in Anglo-American law.” Deborah A. DeMott, Beyond Metaphor: An Analysis of Fiduciary Obligation, 1988 Duke L. J. 879, 879 (1988). Likewise, it has been stated that:

“[f]iduciary” is a vague term, and it has been pressed into service for a number of ends. . . . [T]he term “fiduciary” is so vague that plaintiffs have been able to claim that fiduciary obligations have been breached when in fact the particular defendant was not a fiduciary stricto sensu [i.e., in the strict sense] . . . .

United States v. Milovanovic, 678 F.3d 713 (9th Cir. 2012) (quoting Black’s Law Dictionary, 702 (9th ed. 2009).

Perhaps the reason why fiduciary relationships are so difficult to nail down is because the concept arose as a flexible equitable remedy. See DeMott, Beyond Metaphor at 880-82.  Consequently, whether one is a fiduciary, and therefore involved in a fiduciary relationship, is by its very nature case specific. 

So, what is a fiduciary?  Broadly speaking, “[a] fiduciary relation exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.”  Restatement (Second) Torts, §874, comment a.  Similarly, Black’s Law Dictionary defines a “fiduciary” as:

[A] person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires … [a] person having [a] duty, created by his undertaking, to act primarily for another’s benefit in matters connected with such undertaking…a person having duties involving good faith, trust, special confidence, and candor towards another.

Given such broad definitions, it is no wonder that determining whether someone is in fact a fiduciary has become so problematic.

To make matters worse, a fiduciary duty need not be express, but can be implied.  Express fiduciary relationships arise by contract or statute. Those are relatively easy to determine. Implied fiduciary relationships, however, arise when, regardless of any contract or statute, one party relies upon another to act on their behalf and look out for his/her best interests and/or property.  Again, this is a fact intensive inquiry.  Moreover, even if there is a contract defining the parties’ relationship as something other than a fiduciary relationship, subsequent actions by the parties may create an implied fiduciary relationship. 

Of course, there must be at least two to tango. A fiduciary relationship cannot be unilaterally formed. Instead, the purported fiduciary must agree, whether expressly or impliedly, to act in the other party’s best interest. 

Ultimately, despite the difficulty of defining fiduciary relationships, the basic concept focuses on whether a person assumes a trustee like position with discretionary power over the interest of others. Such relationship may be express or implied, and arises under a variety of circumstances.  Thus, if you find yourself taking care or possession of another person’s money, property or decision making, you are likely a fiduciary.  But unfortunately, that is not the end of the story.  It is only the beginning.  As stated by Justice Frankfurter, in S.E.C. v. Chenery Corp., 318 U.S. 80, 85-86 (1943) , “to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?”  I leave those questions for subsequent posts.   

June 30, 2014

Forgotten, But Not Lost

by Jody H. Hall, Paralegal

I have been working with a client whose mother passed away more than ten years ago.  Due to the passage of time, mergers, corporate name changes and stock splits, and a variety of other circumstances, quite a bit of her property had been turned over to the State of Colorado as unclaimed property.  However, contrary to what some may believe, all is not lost!  These assets still belong to her, and in this case, to her legal heirs.  The claims process is relatively easy and can even be initiated online – you just have to start the search!

The Great Colorado Payback (the “GCP”) is a division of the Colorado State Treasurer.  They are charged with “reuniting Coloradoans with their lost or forgotten assets” – what an amazing job description!  The GCP regularly receives proceeds of bank accounts, stock certificates and dividends, oil and gas royalty payments, utility refund payments, the contents of safe deposit boxes and more from “holders” (financial institutions or other entities in possession of these assets) that have lost contact with the rightful owner.  The current list maintained by the Colorado State Treasurer contains more than 1.7 million names!

Our firm routinely recommends that our newly-appointed personal representatives check the state’s website for any unclaimed (sometimes referred to as abandoned) property for recently deceased individuals.  A GCP representative recently educated me about the dormancy period, which is 5 years from the last customer-initiated contact.  Holders typically do not turn over the accounts to the GCP until the expiration of this dormancy period.  Going forward, I will begin to check the GCP list again immediately prior to closing an estate in order to ensure that no assets belonging to the decedent, but not discovered by the personal representative (for example, statements may not be sent to the owner, and therefore received by the PR, if the holder had an old address), have been reported during the pendency of the estate (or trust) administration.

In addition to the Unclaimed Property List, the GCP office maintains an Estate of Deceased Owners and Dissolved Corporations List.  Pursuant to escheat law, it is not until twenty-one years after an estate is probated or a corporation dissolved, and their funds are turned over to the State Treasury that those funds become property of the State and are deposited into the Public Education Fund.  So even for a probate estate where there are no known heirs at the time of the estate administration, there is still time for the rightful heirs, should any be located, to receive their inheritance.  Please note that the proper claim procedure in this instance involves obtaining an order of distribution from the probate court.

For more information or to check to see if a client (deceased or alive), or even YOU, have forgotten assets on the list, go to  For links to other states, check out or

Be sure to consult the FAQ’s and instructions on the website to include all of the required information for your claim, particularly with assets of deceased individuals.  Now that you have found the lost assets, you do not want missing paperwork to delay your receipt even longer.

Happy searching!

April 28, 2014

Should an undue influencer be responsible for paying the legal fees incurred to rectify the undue influence?

by Kelly Cooper

In a recent unpublished decision, the Colorado Court of Appeals held that a niece who unduly influenced her uncle was not responsible for the payment of the uncle's legal fees, which were required to rectify the undue influence and return the property to the uncle.

Specifically, the niece was accused of unduly influencing her uncle to give her pieces of real estate during his life. A jury found that the niece did unduly influence her uncle and that she breached her fiduciary duty to her uncle. As a result, the court ordered that the real estate be transferred back to the uncle. In addition, the jury awarded $315,000 in legal fees against the niece to make the uncle whole.

On appeal, the niece argued that she should not be responsible for the payment of attorney's fees because Colorado follows the American rule that parties in a dispute must pay their own legal fees. The uncle, through his conservator, argued that an award of legal fees was appropriate in this case under the breach of fiduciary duty/trust exception to the American rule. This exception was first recognized by the Colorado Court of Appeals in 1982. See Heller v. First Nat'l Bank of Denver, 657 P.2d 992 (Colo. App. 1982). The Colorado Supreme Court recognized the exception in 1989. See Buder v. Satore, 774 P.2d 1383 (Colo. 1989).

Despite the recognition of this exception, the Colorado Court of Appeals found that the Colorado Supreme Court has cautioned it against liberally construing any of the exceptions to the American rule.

In finding that the exception did not apply to this case of undue influence, the Colorado Court of Appeals held that the niece's breach of fiduciary duty did not closely resemble a breach of trust. In addition, the Court of Appeals found that the niece breached her duty as an individual, rather than any fiduciary duty to manage property, and that abusing personal influence is not similar to mismanaging property as a fiduciary.

The citation for the case is: In the Interest of Phillip Delluomo, Protected Person, 2012CA2513.