Tax Apportionment Controversies Continue to Fuel Litigation

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by C. Jean Stewart

Last month Maryland’s highest appellate court released[1] a narrowly-divided (4-to-3) opinion in a tax apportionment case involving the estate of celebrity novelist Tom Clancy (The Hunt For Red October, Patriot Games, Clear and Present Danger, and other popular espionage novels), who died on October 1, 2013.  This case once again confirms that (1) blended families, combined with (2) tax apportionment disputes and (3) ambiguity and inconsistency in estate planning documents, inevitably fuel expensive and protracted probate litigation.

In his will, Clancy gave his tangible personal property and two of his residences outright to his second wife, who survived him, and directed his Personal Representative to divide his residuary estate into three equal parts.  One part, designated as the “Marital Share,” was to be (a) comprised entirely of assets qualifying for the federal estate tax marital deduction, (b) held solely for the benefit of his widow, and (c) exonerated from all tax liabilities to qualify entirely for the marital deduction.   Read more

Probate and Trust Cases Now Searchable in ICCES

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by Jody H. Hall, Paralegal

As of Monday, August 7, 2016, practitioners can now search for probate and trust cases in the Integrated Colorado Courts E-Filing System (“ICCES”).  In the past, Colorado probate estate and trust cases were only available for viewing by attorneys of record.  If someone needed to determine if a case had been opened, he or she would need to contact the court clerk’s office and often pay a search fee.  In the most recent release of ICCES, registered users can search to determine if a probate estate or trust matter has been opened; however, the documents themselves will only be available for online viewing to parties of record and to the Court.

Protective proceedings will remain a protected filing class and only attorneys of record will have access to those cases.  An entry of appearance will need to be filed, and accepted by the court, in these matters to gain access.

All Public documents submitted in trust and estate cases prior to August 6, 2016, will be set to a document security type of Protected and not available for viewing unless counsel is of record in the case.

Click here to view the Probate Enhancements section of the Colorado Judicial Branch E-Filing News Newsletter, August 2016.

Issuance of IRS Estate Tax Closing Letters

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by Kimberly Rutherford

After Carol Warnick’s blog of December 14, 2015 briefly discussed the new procedure enacted by the Internal Revenue Service (the “IRS”) regarding the issuance of Estate Tax Closing Letters (“closing letter”) only if specifically requested by the taxpayer for all estate tax returns filed after June 1, 2015, we decided to watch closely to see what happened with our requests for closing letters.

The IRS’s website of “Frequently Asked Questions on Estate Taxes” had been previously updated on June 16, 2015, and addressed the issue of when a closing letter could be expected. The IRS asked that taxpayers wait at least four months after filing the Estate Tax Return to make a request for the closing letter.  The website also included a chart detailing when the IRS will and won’t issue a closing letter.

Read more

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

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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

Basic Estate Principles Learned From the Death of Prince

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by Jody H. Hall, Paralegal

The entire world entered mourning when music legend Prince died unexpectedly on April 21, 2016 at the age of 57. There is certainly no shortage of stories and speculation in the news and social media regarding the circumstances surrounding his death, and the handling of his legal, personal and business affairs.

However, as trust and estates professionals, we are drawn to the estate planning, or lack thereof, of the cultural icon. The story that will undoubtedly change and evolve as the estate is administered can be an entertaining and valuable source of lessons learned to share with clients, family members, and dare I say, ourselves.

No one has been able to find a Will. The initial reports stated that no one was able to find a will, and no one had reason to believe that a Last Will and Testament had been created. This underscores not only the importance of having a Will, but also of making sure your nominated personal representative knows where to find it.  Most jurisdictions still require the original will to be lodged or filed with the Court, so your loved ones will need to be able to easily access the original signed document.  Copies are generally not acceptable without additional court action.  The best place to store those documents may also not be in a bank safe deposit box, unless that person has access to the box already.  Otherwise, it may require Court intervention to access the box to determine if a Will is inside.  Communication before your death with those that you trust to handle your affairs after your death will alleviate much stress and confusion.  Read more

Colorado Supreme Court Upholds the Strict Privity Doctrine for Attorney Malpractice Claims

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by Kelly Dickson Cooper

The Colorado Supreme Court upheld the strict privity doctrine for attorney malpractice claims by nonclients and reaffirmed that an attorney’s liability is limited to when the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation. Baker v. Wood, Ris & Hames, case number 2013SC551 (2016 CO 5).

In Baker, the dissatisfied beneficiaries sued the attorneys for their father and alleged as follows:

  • The attorneys failed to advise their father of the impact of holding property in joint tenancy.
  • The attorneys failed to advise their father that failing to sever those joint tenancies would frustrate his intent to treat his children equally with his stepchildren.
  • The attorneys’ actions allowed the surviving spouse to change their father’s estate plan after his death.
  • The attorneys drafted documents for the surviving spouse that were different from their father’s original plan.
  • The beneficiaries were the intended beneficiaries of the client’s plan, that the attorneys failed to advise the beneficiaries of the relevant facts, and that they had suffered damages as a result.

The beneficiaries asked the Colorado Supreme Court to adopt the “California Test” or the “Florida-Iowa Rule” and set aside the strict privity rule. The Court rejected the adoption of both tests and reaffirmed the strict privity rule. The Court also held that the beneficiaries’ claims would fail under both the California Test and the Florida-Iowa Rule.

The Court put forth the following rationales for upholding the strict privity rule in Colorado:

  • It protects the attorney’s duty of loyalty to the client and allows for effective advocacy for the client.
  • Abandoning strict privity could result in adversarial relationships between an attorney and third parties. This could result in conflicting duties for the attorney.
  • Without strict privity, the attorney could be liable to an unforeseeable and unlimited number of people.
  • Expanding attorney liability to nonclients might deter attorneys from taking on certain legal matters. The Court reasoned that this result could compromise the interests of potential clients by making it more difficult to obtain legal services.
  • Casting aside strict privity would increase the risk of suits by disappointed beneficiaries. Those suits would cast doubt on the testator’s intentions after his or her death when he or she is unavailable to speak.
  • The beneficiaries have other avenues available to them, including reformation of the documents.
  • A personal representative can pursue legitimate claims on behalf of a testator.

The Court held, “We further believe that the strict privity rule strikes the appropriate balance between the important interests of clients, on the one hand, and non-clients claiming to be injured by an attorney’s conduct, on the other.” As a result, the strict privity rule remains intact in Colorado.

Now There Are Tax Transcripts In Lieu of Estate Tax Closing Letters

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by Carol Warnick

The Internal Revenue Service (“IRS”) announced earlier this year that it would no longer routinely send out an estate tax closing letter and that such letters would have to be specifically requested by the taxpayer. The change in procedure was effective for all estate tax returns filed after June 1, 2015.

Previously, an estate tax closing letter was evidence to show that the IRS had either accepted an estate tax return as filed, or if there has been an audit, that final changes had been made and accepted. Receipt of an estate tax closing letter has never meant that the statute of limitations on the return has run, but it has given comfort to the estate administrator that he or she could make distributions and/or pay creditors knowing that the chances of further IRS review of the return was not likely. Many personal representatives and trustees have made it a practice to wait for such a closing letter before funding sub-trusts or making any significant distributions.

On December 4, 2015, the IRS announced that “account transcripts, which reflect transactions including the acceptance of Form 706 and the completion of an examination, may be an acceptable substitute for the estate tax closing letter.”   Such account transcripts will be made available online to registered tax professionals using the Transcript Delivery System (TDS). Transcripts will also be made available to authorized representatives making requests using Form 4506-T. They still must be requested, but may be easier to obtain than an estate tax closing letter.

For further instructions, here is the link to the information on the IRS website: http://tinyurl.com/plhb6f6.

No Medical Evidence Required for Appointment of a Conservator

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by Kelly Dickson Cooper

Imagine that you have just discovered that your father has received several unsolicited emails asking for money and that he has sent almost $500,000 to anonymous offshore bank accounts.  Worried for your father, you decide to seek a conservatorship to protect his assets. 

These are the facts that started the dispute resulting in a recent Colorado Court of Appeals case, In re Neher, 2015 COA 103 (July 30, 2015).

At the hearing, there was no medical evidence presented, but rather, expert testimony from a CPA.  The Court ruled in favor of son and his father appealed.  The father’s primary argument on appeal was that Colorado’s conservatorship statute requires medical evidence before a court can determine whether a conservator is necessary. 

Colorado’s conservatorship statute provides that a petitioner must prove by clear and convincing evidence that the individual is unable to manage his property and business affairs because they cannot effectively receive and evaluate related information.  In addition, a petitioner must prove, by a preponderance of the evidence, that the individual has assets that will be wasted or dissipated unless management is provided and that protection is necessary.

The Court of Appeals denied the father’s appeal and held that medical evidence is not required evidence in a proceeding requesting appointment of a conservator.  The Court of Appeals considered the following in reaching the decision:

-The language of the statute does not expressly require expert testimony like other statutes in Colorado.

-The language of the statute does not require that a petitioner show the causes of the individual’s inability to effectively receive or evaluate information.

-The Court’s interpretation is consistent with other conservatorship statutes.

-To determine legislative intent, the Court compared the Colorado statute to the Uniform Probate Code and specifically identified that the Colorado statute did not contain the language “an impairment” like the Uniform Probate Code.

The Court of Appeals rejected the father’s arguments that the judicial department forms regarding the appointment of a conservator and the termination of a conservatorship contain references to a physician’s letter or professional evaluation.  The Court of Appeals also rejected the father’s out of state case citations as unpersuasive.

Litigation in the area of conservatorships is continuing to grow and this case provides important guidance for the interpretation of the Colorado standard for the appointment of a conservator.

Equity: Alive and Well in Colorado

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by C. Jean Stewart

Historically, courts of law, presided over by judges, and courts of equity, presided over by chancellors, were separate in function and procedure.  Law courts were governed by strict rules and rights while chancellors, the representatives of the king, were said to rule with discretion, utilizing concepts of fairness, morality and conscience.

In modern times, courts of law and equity have been merged and concepts of equity have receded as a myriad of statutes and regulations have replaced the application of “conscience” in the administration of justice.  Early probate courts in America exercised equity jurisdiction.  Probate judges continue to be conscious of the equitable legacy of the courts over which they preside.  The Colorado Probate Code, adopted in Colorado in the 1970s, reminds judges sitting in probate that “Unless displaced by the particular provisions of this code, the principles of law and equity supplement its provisions.” C.R.S. §15-10-103.

Recently, the Colorado Supreme Court reaffirmed that the “probate court’s traditional powers in equity supplement and reinforce the statutory directives of the Colorado Probate Code.”  Beren v. Beren, 349 P.3d 233 (Colo. 2015) .  While the Supreme Court faulted the method used to calculate an equitable adjustment to a surviving spouse’s elective share, the Supreme Court approved the equitable award if calculated using alternative methods, including several suggested by the Court itself. 

Undoubtedly there will continue to be resistance to the application of equity in probate proceedings—particularly from counsel or parties who are at risk of suffering detriment resulting from its application. It’s hard to imagine such efforts will be any more successful in light of the current status of Colorado law.   

Updates for fiduciaries from the IRS and Colorado

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by Kelly Cooper

The IRS has stated that it will not issue closing letters for federal estate tax returns filed on or after June 1, 2015, unless one is requested by the taxpayer. The information provided by the IRS states that the taxpayer should wait at least four months after filing the return to request a closing letter. A closing letter indicates that the estate’s federal estate tax liabilities have been paid. While a closing letter is not a formal closing agreement, many fiduciaries wish to have a closing letter from the IRS before making final distributions and closing estates. For returns filed prior to June 1, 2015, please refer to the following document for guidance as to when a closing letter will be issued:

Frequently Asked Questions on Estate Taxes

Certain statutes in the Colorado Probate Code are subject to cost of living adjustments each year. The numbers for 2010-2015 can viewed here:

Cost of Living Adjustment of Certain Dollar Amounts for Property of Estates in Probate