Category Archives: Fiduciary Litigation

March 1, 2017

Digital Evidence and Privacy: Can you ask Alexa if mom’s incapacitated?

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 >>

February 13, 2017

Trump Foundation Admits to Self-Dealing

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.

January 17, 2017

New Fiduciary Act Brings Both Progress and Uncertainty

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 >>

December 19, 2016

Claims Challenging Estate Plans

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.

Testamentary Capacity

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 >>

September 12, 2016

A Killer Cannot Profit from His or Her Own Wrong

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 >>

June 20, 2016

Colorado Uniform Trust Decanting Act

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.

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

April 27, 2016

Personal and Family Lending: New Federal and Colorado Regulations

by Desta K. Asfaw

There have been a number of recent changes to the mortgage lending laws.   Under current law in Colorado, certain private loans secured by residential real estate may be subject to compliance with strict licensing and other requirements.   Failure to comply could potentially result in misdemeanor charges and/or fines.

These new obstacles stem from provisions of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), and the Colorado Mortgage Loan Originator Licensing and Mortgage Company Registration Act (“CMLO Act”).

Read more >>

March 29, 2016

Thoughts from the Bench on Trust and Estate Litigation

by Carol Warnick

I recently read an article in the Utah Bar Journal1 that provides thoughtful insights into the area of trust and estate litigation in Utah based upon a recent survey to current and past Utah district court judges. As a trust and estate litigator who actively practices in Utah, Colorado, and Wyoming, I was most interested in what the district court judges had to say about the trust and estate cases they had either tried or dealt with on summary judgment motions. Some of their observations are particularly important to any lawyer practicing in this space either as an estate planner or a trust and estate litigator. Planners most certainly benefit from understanding these controversies from the judge’s perspectives, since it is the planner’s documents that will be front and center in the litigation of any contested case.

One of the most important points set forth by Mr. Adams is to remind the parties that the assets everyone is fighting about actually belong to someone else. The person who sets up the will or the trust gets to decide who gets the assets, and that decision doesn’t have to be logical or even what others might consider “fair.” It may also contravene what the decedent has previously stated orally to a family member or members. But the court is placed in the position of doing its very best to see that the decedent’s estate plan, whatever it may be, is carried out.

Read more >>

March 14, 2016

Your Fiduciary Duty to Invest “Prudently”

by Elizabeth Meck

As promised, this is the second post in a series on the fiduciary duties of a trustee. In the first blog in this series, we discussed the fundamental duty of loyalty. In this post, we will discuss the trustee’s duty to exercise care and skill in the management and investment of trust assets.

Acting in the best interests of the trust and the trust beneficiaries, a trustee has the duty to protect and preserve trust assets and, generally, to make the assets productive. In making investment decisions and managing trust assets, the trustee must further abide by the “prudent investor rule,” which requires a trustee to exercise reasonable care, skill and caution. See Colo. Rev. Stat. §§ 15-1.1-101, et. seq. (the “Uniform Prudent Investor Act”) and §§ 15-1-1101, et. seq. (the “Uniform Management of Institutional Funds Act”).

Pursuant to the prudent investor rule, a trustee should consider broad investment factors, such as: current economic conditions, effects of inflation or deflation, tax consequences, the nature of closely-held business interests, alternative investments, expected returns on income and capital, other resources of the trust or trust beneficiaries, the need for liquidity versus preservation of capital, the production of income, the special value or relationship of a particular asset to the trust or the beneficiaries, diversification of investments, and more. See, Restatement (Second) of Trusts § 227. Additionally, while it is important to note that Colorado courts have not officially adopted the Restatement (Third) of Trusts, one could refer to § 90, which lists five helpful “principles” of the prudent investor rule. Generally, any single investment will not violate the prudent investor rule and the trustee should manage the trust portfolio as a whole taking into account these considerations.

The trustee must also abide by any specific instructions in the trust instrument. He should exercise caution in doing so, however, because there are many instances in which blindly following the trust terms may result in unreasonable investment decisions. For example, if the settlor instructs the trustee that he is not required to diversify investments in the case of a closely-held family entity, the trustee would still want to closely monitor the performance of such investments to ensure that the closely-held entity value is not plummeting to the point that the beneficiaries’ interests may be significantly impaired.

It is important to note that poor performance of investments alone will not subject the trustee to a claim for breaching his duties to prudently invest. Beneficiaries frequently and incorrectly think they will have a claim against a trustee simply for poor performance. The trustee, however, will be able to overcome such a claim so long as the underlying investment decisions were reasonably made.

Colorado law does authorize a trustee to hire professionals and to delegate certain aspects of investing and portfolio management. However, the law does not allow for wholesale delegation and the trustee should exercise great caution in hiring professional advisors or fund managers. See Colo. Rev. Stat. §15-1.1-109 (trustee has the authority to delegate investment and management functions, but must engage and monitor such professionals carefully); see also GEORGE G. BOGERT, ET AL, The Law of Trusts and Trustees § 557; Colo. Rev. Stat. §15-1-804(2)(x)(I)(trustee has the power to “employ attorneys or other advisors to assist the fiduciary in the performance of his or her duties” (emphasis added)).

Finally, a trustee should keep in mind that uninformed beneficiaries are uneasy beneficiaries. Not only is it a good idea for a trustee to provide information to the beneficiaries as to investment and asset management decisions, Colorado law requires the trustee to keep beneficiaries “reasonably informed” and to provide accountings to beneficiaries upon reasonable request. Colo. Rev. Stat. § 15-16-303. Keeping beneficiaries informed as to investment decisions not only provides peace of mind to the beneficiaries, but may provide the trustee with an argument particularly in the situation where the beneficiaries have consented to risky or unusual investment strategies. See Beyer v. First Nat. Bank of Colorado Springs, 843 P.2d 53 (Colo. App. 1992).

In sum, the trustee has a duty to continually observe and evaluate investments to ensure that they are consistent with the purpose of the trust, current economic conditions, and the needs of the current and remainder beneficiaries. So long as the trustee exercises reasonable care in investment decisions, exercises care in selecting and hiring investment advisors and professionals, follows the general principles of prudent investing, and keeps the beneficiaries informed, the likelihood of a claim against the trustee for improper investment decisions may be reduced.