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 Rebecca Klock Schroer
The Colorado Court of Appeals recently issued an opinion reinforcing the breadth of the probate court’s jurisdiction. In re Estate of Arlen E. Owens, 2017COA53.
In Owens, the decedent’s brother filed a petition to set aside nonprobate payable-on-death (“POD”) transfers, alleging that at the time the decedent executed certain beneficiary designations, he lacked testamentary capacity and was unduly influenced by his caretaker. The caretaker filed an objection based on jurisdiction, which the court denied. After an evidentiary hearing on the petition, the trial court set aside the beneficiary designations and imposed a constructive trust over the transferred assets held by the caretaker. 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 Morgan Wiener
Much has been written on this blog about digital assets, and you have likely given some thought to the impact that this relatively new category of assets has on estate planning and administration. But have you considered the other ways in which new digital devices and technologies might impact your practice and your clients’ lives? If not, a murder case in Bentonville, Arkansas, home of Walmart, will give you something to think about.
James Bates is accused of murdering his coworker Victor Collins (yes, they both worked at Walmart) in a hot tub in November 2015. On the night of the alleged murder, Bates’s Amazon Echo was streaming music through its speaker, and Bentonville police have issued a search warrant for the Echo’s recording from that night hoping it will shed light on what happened.
The Amazon Echo is a speaker and virtual assistant that works by constantly listening to background noise and conversation. The virtual assistant, Alexa, is activated when the Echo hears someone say “Alexa.” The background conversations are not recorded by the Echo, but anything said after Alexa is activated is recorded. Because Bates’s Echo was streaming music on the night of the alleged murder, the police believe that it may have been activated and recording conversations. 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 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 Rebecca Klock Schroer
We are seeing an increase in the number of lawsuits in which people are challenging or trying to circumvent estate plans. The claims traditionally include lack of testamentary capacity and those involving improper actions by family members, agents under powers of attorney or conservators.
A challenge to an estate plan often involves a claim that the testator was not of sound mind. Under Colorado law, a sound mind includes the presence of the Cunningham factors and absence of an insane delusion that materially affected the testamentary instrument. The Cunningham factors are as follows: the testator must (1) understand the nature of the act, (2) know the extent of his property, (3) understand the proposed testamentary disposition, (4) know the natural objects of his bounty, and (5) that the testamentary instrument represented his wishes. Cunningham v. Stender, 255 P.2d 977 (Colo. 1953).
In addition to these factors, the testator cannot be suffering from an insane delusion. An insane delusion exists if a person has a persistent belief, resulting from illness or disorder, in the existence or non-existence of something contrary to all evidence, which materially affects the disposition in the testamentary instrument. Breeden v. Stone, 992 P.2d 1167 (Colo. 2000). For example, failure to include a child in the will because the testator believes that child has been abducted by aliens and will never return to earth. Read more
by Matthew Skotak and Rebecca Klock Schroer
Common law provides that a killer cannot profit from his or her own wrong. This policy underlies what is known as the “Slayer Statute.” The Colorado Probate Code includes Colo. Rev. Stat. § 15-11-803 to address the scenario where a person kills another and stands to inherit the victim’s assets.
Under the Slayer Statute, there are two ways to show that a person cannot inherit. First, if the person is convicted of a felonious killing in a criminal proceeding, after all right to appeal has been exhausted, such conviction is conclusive under the Slayer Statute. Accordingly, the killer’s right to inherit from the victim is extinguished and the killer is generally treated as though he or she predeceased the victim.
Second, a civil action may be commenced under which the accusing party may try to prove, by the preponderance of the evidence, the elements of a felonious killing. If the elements are proven, the killer’s right to inherit from the victim is extinguished. The ability to move forward with a civil action may be particularly useful if the criminal proceeding is subject to multiple appeals and is pending for a number of years.
The Slayer Statute generally addresses the killer’s right to inherit under revocable instruments, nonprobate assets, e.g., life insurance, and statutory rights. It does not address every possible scenario and therefore, has a “catch-all” provision. This provision provides that “A wrongful acquisition of property or interest by a killer not covered by this section shall be treated in accordance with the principle that a killer cannot profit from his or her wrong.” Colo. Rev. Stat. § 15-11-803(6). Read more
by Rebecca Klock Schroer
The Colorado Uniform Trust Decanting Act (“Act”) was recently signed by the Governor and it will become effective August 10, 2016. The legislation is large, complex and important for both estate planners and probate litigators.
Decanting allows a trustee to distribute the assets of one trust (“first trust”) to a second trust (“second trust”) under specific circumstances. The Act applies to an irrevocable trust, other than an irrevocable trust held solely for a charitable purpose. Colo. Rev. Stat. § 15-16-903. Decanting is used, among other things, to correct drafting errors, change the situs/governing law of a trust, alter trustee provisions (e.g. trustee succession, create a directed trustee arrangement, reallocate trustee powers), alter powers of appointment, add special needs provisions, and comply with changing tax laws.
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)
- 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