Avoiding Fiduciary Conflicts of Interest

by Carol Warnick

It is very difficult for a trustee to have conflicts of interest without breaching the duty of loyalty.  We typically think of trustee conflicts as they relate to self-dealing by the trustee, which is almost always a problem and for which the beneficiaries can obtain redress.  But I have seen more conflicts lately in my practice where a trustee is trustee of different trusts that have conflicting interests, or the trustee is serving as trustee of a trust and also as personal representative of an estate whose interests are in direct conflict with each other.

When faced with a conflict situation, a trustee needs to take action before he or she breaches the duty of loyalty, which is a bedrock duty owed by all fiduciaries.  Restatement of Trusts § 78 (1) states that a “trustee has a duty to administer the trust solely in the interest of the beneficiaries . . . .”  That is not possible when the two trusts (or the trust and the estate) have conflicting interests and what the fiduciary does as trustee of one trust would be detrimental to the other.  One example would be engaging in a specific transaction that is beneficial to the beneficiaries of one trust but harmful to the beneficiaries of the other trust or of the estate.  Read more

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

2018 Cost of Living Adjustment of Certain Dollar Amounts Under Colorado Probate Code

by Suzanne Coffman

The 2018 cost of living adjustment list of certain dollar amounts under the Colorado Probate Code has been published by the Colorado Department of Revenue.  It is important for probate practitioners to be aware of these numbers as they relate to the intestate share of a decedent’s surviving spouse, supplemental elective share, exempt property, lump sum exempt family allowance, installment amount exempt family allowance and collection of personal property affidavit. Read more

Fifty Ways to Leave Your Lover (or Fifty Ways to Plan, Administer and Litigate Estates)

by Carol Warnick

As the old song by Paul Simon contemplates, there are fifty ways to leave your lover, and there are also fifty ways to plan, administer and litigate estates and trusts.  I have recently become aware of various situations in which attorneys assume that because things are done a certain way in the state in which they practice, they are done the same way in other states.

I am licensed in three states, Colorado, Utah and Wyoming, and deal regularly with the significant differences between them.  For example, Colorado tends to use “by representation” in dealing with passing assets down the generations, but Utah and Wyoming both use “per stirpes.”  Read more

Good News for Surviving Spouses Seeking to Elect Portability

by Chelsea May

IRS Revenue Procedure 2017-34, effective as of June 9, 2017, increases the amount of time that a surviving spouse has to file an estate tax return (Form 706) for the purpose of electing portability of the Deceased Spousal Unused Exclusion amount (otherwise known as “DSUE”).  The portability election, which  was first introduced in 2010 and made permanent under the American Taxpayer Relief Act of 2012, offers a great way for a surviving spouse to preserve the unused estate tax exemption of their deceased spouse.  The DSUE amount can then be added to the surviving spouse’s own exemption amount and be used to shelter the surviving spouse’s lifetime gifts and transfers at death from estate taxes.

Prior to June 9, 2017, a portability election was required to be made on a timely filed estate tax return, due to the IRS nine months from the decedent’s date of death, with the availability of an automatic six month extension.  The IRS has once before provided some relief from this deadline in Revenue Procedure 2014-18, but that ruling was temporary and provided no relief for the estates of decedents dying after January 1, 2014.  The IRS claims to have been flooded with numerous requests for an extension of time to file for the portability election and has issued this new Revenue Procedure to provide a simplified method to obtain the extension to elect portability for a decedent’s estate who has no estate tax filing requirement to the later of (i) January 2, 2018 or (ii) the second anniversary of the decedent’s date of death.  Note that the regulation provides that this longer deadline is not available to the estate of a decedent if an estate tax return was timely filed.  In such case, the executor either will have elected portability by timely filing the return or will have affirmatively opted out of portability by not making the election.      Read more

Fiduciary Duty to Elect Portability

by Matthew Skotak

The Oklahoma Supreme Court recently upheld a ruling that has required the Personal Representative of an Estate to take the necessary steps to transfer the deceased spousal unused election (DSUE) to the surviving spouse. The case stems from the rights created by the federal gift and estate tax laws regarding portability.  More specifically, beginning in 2010 one spouse was allowed to transfer, at death, his or her unused gift and estate tax exemption to the surviving spouse. Prior to 2010, each spouse had his or her own gift and estate tax exemption, but any portion of that exemption which remained unused by the spouse at death could not be transferred to the surviving spouse.

In In re Estate of Vose, 390 P.3d 238 (Okla. 2017), the Personal Representative of the Estate, one of the children of the decedent by a prior marriage, had refused to make the required election for transfer even though the surviving spouse agreed to pay the cost required to prepare the necessary Federal Estate tax return to do so. Read more

Now That You Have Accessed the Digital Assets, Don’t Forget to Value Them

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

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

Seeking Clarity in the Distribution of Mineral Interests from a Decedent’s Estate

by Andy Lemieux, Elizabeth Meck, and Jessica Schmidt

As any practitioner who has dealt with the distribution of mineral interests from a decedent’s estate knows, dealing with these interests can be tricky and the process is not always clear. This is particularly true when old interests have not been distributed properly at the time of death. Thankfully, recent decisions in Colorado, as well as updates to certain provisions of the Colorado Probate Code, provide some clarity to this process.  A recent decision in Utah also provides clarity about who is entitled to the proceeds of production from oil and gas operations when life tenants and remaindermen are involved.

Specifically, Colorado just updated its statutes governing the process for the determination of heirship, found in the Colorado Probate Code at Colo. Rev. Stat. § 15-12-1301, et. seq.  A sub-committee of the Trust and Estate section of the Colorado Bar Association carefully reviewed the existing statutes, coordinated efforts with other sections of the bar, and with the approval of the Trust and Estate section, presented revisions to these statute sections as part of the omnibus bill, SB 16-133, in February 2016.  The committee’s goal was to address the issues Colorado practitioners have experienced in trying to distribute these interests from dormant or previously-unopened probate estates and to make the process to distribute previously undistributed property, including mineral interests, more clear.  SB 16-133 was signed by Governor Hickenlooper on May 4, 2016, thereby adopting the revisions recommended by the committee.  A copy of the Bill as enacted can be found here.

Read more

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