Who Gets the Embryo?

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by Elizabeth Meck

This has been a busy week in celebrity news, particularly with regard to advancements in assisted reproductive technology and the applicability of legally enforceable agreements.

For example, Sophia Vergara, superstar of ABC sitcom Modern Family, is now embroiled in a legal battle with her ex-fiancé, Nick Loeb, regarding two frozen embryos created by the then-couple several years ago when they were planning to use in vitro fertilization and a gestational surrogate to have a baby. Vergara and Loeb executed documents at their fertility clinic stating their agreement to keep the embryos frozen unless both parties mutually agreed to use them (i.e., to implant them into a surrogate) or to destroy them. Otherwise, the parties agreed that the embryos would only be destroyed if one of them dies. Apparently, the standard documents did not address what would happen to the embryos in the event the couple did not remain together or could not agree whether to use or destroy the embryos. Hence, Loeb filed a lawsuit in which he requests that a judge order that the embryos cannot be destroyed under any circumstances and states his position that the survivor between Loeb and Vergara would have control over the embryos upon the death of the other party. For more on the dispute, click here.

This type of dispute is not limited to the rich and famous. Assisted reproductive technology, or “ART,” is on the rise.1 The Centers for Disease Control estimates that approximately 12% of couples experience problems with fertility and as many as 12% of U.S. women and their partners receive infertility services.2 In 2009, the Colorado Legislature adopted the Uniform Probate Code III into the Colorado Probate Code (the “Code”), which incorporated several important changes regarding ART.3 For example, the Code now specifically includes definitions of a “genetic father” and a “genetic mother,” § 15-11-115(5-6), the definition of a “genetic parent," § 15-11-115(7), and clarification as to the individual who “functions as a parent of the child,” § 15-11-115(4), to assist in the determination of exactly who constitutes a child’s “parent” for purposes of succession under the Code.

Further, sections 15-11-116 to -121 of the Code re-codified the existing concept that marital status is not necessarily determinative of a parent-child relationship. As a result, the rules of who is eligible to “take” in an intestacy proceeding have been expanded to include ART children who are adopted or in the process of being adopted. § 15-11-119(5). An ART child does not, however, maintain intestacy rights as to a gestational carrier, absent additional evidence of the parent-child relationship. § 15-11-121(3). Importantly, though, an ART child who is born to a birth mother, who is not a gestational mother, is considered the child of the birth mother regardless of whether the child is genetically tied to the birth mother; and, the person who consented to the assisted reproduction by the birth mother with the “intent” to be treated as the other parent of the child is the parent. § 15-11-120. Intent can be demonstrated any number of ways pursuant to § 15-11-120(6).4 It is important to note that a parent can demonstrate “intent” to be treated as the parent of a posthumously conceived child, so long as the child is in utero within thirty-six months or born within forty-five months of the intended parent’s death. § 15-11-120(11).

ART children may also be included in the definition of a class defined in estate planning documents such as “children” or “grandchildren” or “descendants,” even though they may or may not be genetically related to the grantor or settlor. For example, an ART child may be included in the class even though he or she is not in utero for thirty-six months or born up to forty-five months after the grantor’s or the settlor’s death. § 15-11-705(7).

The presence of ART and the constantly-evolving technologies in this area require that estate planning attorneys, drafters of marital agreements and probate litigators be vigilantly aware of the repercussions of these definitions and our changing laws, as well as how the changing definition of “family” will play out after a decedent’s death. It is increasingly important to ask estate planning clients whether they have any children who were the result of ART, or whether they still have any cryopreserved sperm, eggs, or embryos. Also, including specific instructions with regard to ART in the estate planning documents may become necessary so as to try to avoid dispute after the passing of a genetic parent, an adoptive parent, or an individual who consented to ART by a birth mother.

Additionally, it is increasingly important to inquire as to the existence of any existing written document or directive that specifies the ultimate use or destruction of frozen genetic material such as embryos. Sophia Vergara’s experience could teach us all a good lesson in terms of covering all aspects of “family” as well as “property” when discussing issues with clients whether in the planning stages or during the administration of an estate or trust. For example, practitioners should start to think about the importance of including genetic material in estate planning documents and marital agreements. Further, practitioners should discuss post-death use and disposition of genetic materials with their clients, and address questions such as whether the surviving spouse should be able to utilize a frozen embryo after the death of the other spouse.

At the end of the day, it is crucial to ensure that a client’s documents consistently reflect his or her wishes regarding all assets, family and dispositions, including the often-difficult decision of how to treat and manage genetic materials. Clarification in the planning documents and marital agreements may reduce the potential for surprises and disputes during estate and trust administration or divorce. Otherwise, as in many other areas of probate litigation, disputes with regard to one’s entitlement to an estate or trust will continue to rise.

1ART commonly includes a variety of assisted reproduction methods such as: sperm or egg donation, in vitro fertilization, gestational surrogacy, embryo donation or adoption, embryo or egg or sperm cryopreservation, post-death conception, and the disposition of cryopreserved embryos.
2Centers for Disease Control, 2006-2010 National Survey of Family Growth.
3The Code defines ART as “a method of causing pregnancy other than sexual intercourse.” § 15-11-115(2).
4Intent can be demonstrated by the following: a signed record that evidences the individual’s consent; evidence that the individual functioned as the parent of the child no more than two years after the child is born; or, the intent to function as the parent of the child within two years of the child’s birth notwithstanding that the individual’s intent was thwarted by incapacity or death. § 15-11-120(6).

Trustees Take Heed: Arizona Adopts the Fiduciary Exception to Attorney-Client Privilege

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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. 

Avoidable Litigation as a Threat to the Assets of An Estate

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by Carol Warnick

It wasn’t that long ago when the real threat to the financial well-being of a person’s estate was death taxes.  People were concerned about losing close to 50% of their estate to taxes without proper planning.  But with the increased exemption amounts, death taxes are not a big issue in most cases.  But something else is taking its toll on the hope of a smooth and simple passing of assets at death, and that is litigation. 

Much of the current estate litigation relates to family disputes, some of which might have been avoided through better estate planning.  But a certain amount of these family disputes would have occurred anyway simply because the families were upset enough to litigate over anything once mom and dad have passed away.  There is a different type of litigation beginning to crop up, however, that may create just as many problems for an estate as family in-fighting, and one which can be totally prevented.  I am speaking of litigation over wills and trusts drafted with forms obtained over the internet.

Unfortunately, with the increased exemption amounts (currently $5.43 million per person) and since many people no longer need tax planning they are more apt to decide they can do their estate planning documents themselves and not involve an attorney.  While self-drafted wills are not new and have been creating estate administration problems for years, I believe that the current ease of finding forms on the internet, making a few changes, and printing them at home will likely make this a more significant problem in the future. 

Cases are starting to crop up regarding mistakes made by consumers using internet forms.  One Florida case is a good example.  The case is Aldrich v. Basile, 136 So. 3rd, 530 (Fla. 2014).  In this case, Ms. Aldrich used a form and listed all the assets she owned at the time (her home and its contents, an IRA, a car and some bank accounts) and stated they should go to her sister.  If her sister didn’t survive her, she listed her brother as the one to receive everything. 

As luck would have it, her sister predeceased her and left her some additional assets which weren’t listed in Ms. Aldrich’s will because she didn’t own them when she drafted her will.   Either because the internet form didn’t contain one or because Ms. Aldrich took it out when she printed the will because she thought all her assets were covered, there was no residuary clause in the will.  As a result, after a trial court decision, an appellate court reversal, and ultimately an appeal to the Florida Supreme Court, it was decided that the listed assets would go per the will but the after-acquired assets inherited from her sister would pass through intestacy, bringing in two nieces who were the daughters of Ms. Aldrich’s deceased brother to share in the estate.

Although the living brother offered a note left by Ms. Aldrich and other extrinsic evidence that Ms. Aldrich intended all of her assets to go to him, the court refused to consider them because of the “four corners” doctrine. There was no ambiguity within the four corners of the will, therefore no extrinsic evidence was admitted.

It is easy to see how Ms. Aldrich could have simply deleted the residuary clause thinking she didn’t need it, but it is very unlikely that a competent lawyer drafting a will would make that mistake.  If the lawyer had made the mistake, there would potentially have been recourse through the lawyer’s malpractice insurance. It seems that the ease of which will and trust forms are now available on the internet and the fact that many people don’t need a lawyer’s expertise for tax planning under current law will combine to create many more of these problems.  Such problems lead to costly litigation with really no recourse for the families of those “do-it-yourselfers.”

Several states have looked at the issue of whether or not legal form providers are violating unauthorized practice of law statutes, but the cases are by no means consistently decided.  While such issues are being sorted out, the old adage “buyer beware” certainly applies with regard to do-it-yourself wills and trusts. 

A concurring opinion in the Florida case summed it up as follows:

Obviously, the cost of drafting a will through the use of a pre-printed form is likely substantially lower than the cost of hiring a knowledgeable lawyer.  However, as illustrated by this case, the ultimate cost of utilizing such a form to draft one’s will has the potential to far surpass the cost of hiring a lawyer at the outset.  In a case such as this, which involved a substantial sum of money, the time, effort, and expense of extensive litigation undertaken in order to prove a testator’s true intent after the testator’s death can necessitate the expenditure of much more substantial amounts in attorney’s fees than was avoided during the testator’s life by the use of a pre-printed form1.

 1Aldrich v. Basile, 136 So. 3rd 530, 538 (Fla. 2014). 

Principal and Income Allocations — Attention to Detail

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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. 

The Fall of Colorado’s Same Sex Marriage Ban

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By Kelly Cooper

Starting on Monday, marriage licenses were issued in Colorado to couples regardless of sexual orientation.

This change came because the U.S. Supreme Court refused to hear cases from Indiana, Oklahoma, Utah, Virginia and Wisconsin.  What do these five states have in common?  Each of them had banned same sex marriage and had those bans declared unconstitutional by a U.S. Court of Appeals. 

In refusing to hear these cases, the U.S. Supreme Court has upheld three U.S. Courts of Appeal’s decisions declaring the same sex marriage bans unconstitutional and making same sex marriages legal in Indiana, Oklahoma, Utah, Virginia and Wisconsin. 

The impact of the U.S. Supreme Court’s refusal to hear these cases has reached far beyond the borders of those five states.  This is because every state in the U.S. is subject to the decisions made by one U.S. Court of Appeals.  For example, Colorado is situated in the 10th Circuit and the 10th Circuit U.S. Court of Appeals declared Utah’s ban on same sex marriage unconstitutional.  Since Utah and Colorado are both bound by 10th Circuit’s decisions, it is likely that Colorado’s same sex marriage ban would also be declared unconstitutional by the 10th Circuit.  As a result, various county clerks began issuing marriage licenses to same sex couples in Colorado.

Current status: There are 19 states that permit same sex marriages plus the District of Columbia.  Due to the U.S. Supreme Court’s decision not to hear these cases, five more states’ bans on same sex marriage will fall bringing the total number of states permitting same sex marriage to 24.  Due to the U.S. Supreme Court’s decision, an additional six states’ same sex marriage bans are effectively overruled, including Colorado’s.  The other five states are Wyoming, Kansas, North Carolina, South Carolina and West Virginia.  This will bring the total number of states allowing same sex marriage to 30.

 We can expect more developments and changes in this area in the near term, so stay tuned.

Robin Williams Got It Right

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by Kelly Cooper

The popular press is always full of cautionary tales about celebrities and their estate plans (see our previous post on Philip Seymour Hoffman).  These stories make it seem that more celebrities get estate planning wrong then get it right.  However, it appears that Robin Williams did take several steps to get his estate plan right before his untimely death. 

Williams created a revocable living trust.  Since trust documents are not part of the public record like a will, we may never know who Williams gave his assets to and how those assets will be handled (in a trust, outright gifts, etc.).  The living trust will help protect Williams’ legacy and his family’s privacy (assuming there is no litigation or disclosure by those with knowledge of the plan).

In addition, living trusts help to avoid probate if they are properly funded.  In California, where Williams lived, the probate process can be expensive due to fees for the attorney and executor that are based on the value of the assets going through probate in addition to appraisal fees and court costs.  If Williams transferred all of his personal assets to the living trust prior to his death, he will have helped to avoid these expenses.

Williams also appears to have created a trust to hold his real estate in California (estimated equity of $25 million) and another trust to benefit his children (value unknown).  While it is not known whether Williams created these trusts to help reduce his estate tax costs, it is possible that he did so.  This uncertainty is because the terms of these trusts remain private.

I hope that Williams’ family benefits from his planning and foresight and that other celebrities take notice.

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

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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.

Letters of Wishes: Helpful or Hurtful?

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by Kelly Cooper and Desta Asfaw

Most of the trusts we see instruct the trustee to consider making distributions for “health, education, maintenance and support.”  While the typical HEMS standard provides certainty in regard to taxes, it does not provide the trustee with any insight into what types of distributions the settlor wanted the beneficiaries to receive from the trust.  In addition, many trusts give the trustee broad discretion in regard to distributions (through the use of the words, “sole” or “absolute”), which puts even more pressure on the trustee to figure out if the settlor would have agreed to make distributions.  Typically, a trustee has little to no guidance from the settlor about his or her desires for the beneficiaries or his or her purposes in creating the trust (other than tax deferral or avoidance).

One solution to this problem is for the settlor of the trust to send to the trustee a non-binding letter of wishes.  Letters of wishes include personal information about the settlor and the beneficiaries, their relationships, the beneficiaries’ abilities and limitations and the settlor’s specific concerns or desires regarding each beneficiary.  Letters of wishes give the trustee more insight into the state of mind of the settlor when exercising discretion, which is helpful when exercising discretion in regard to distributions.

While letters of wishes are generally recognized in the estate planning community, there is very little law regarding the effect of a letter of wishes on a trustee’s discretion, whether reliance on a letter of wishes provides any liability protection to a trustee or if a letter of wishes must be disclosed to the beneficiaries.  If a settlor provides opinions and concerns about the beneficiaries in a letter of wishes that may be hurtful to the beneficiaries, the trustee will then be faced with the difficult decision – do you provide a copy of the letter of wishes to the beneficiaries?  If a claim for breach of the trustee’s fiduciary duty should arise, it may be that the trustee is left with no choice but to make the letter available to the beneficiaries.  In Colorado, there is no case law regarding letters of wishes so it is unknown if the letters of wishes must be disclosed to beneficiaries under C.R.S. § 15-16-303 or whether a trustee can rely on a letter of wishes when making a distribution decision.

Even with the uncertainty relating to the disclosure and use of letters of wishes, any peek into the settlor’s mind and his or her intent regarding distributions will be helpful to a trustee.  If a letter of wishes is admitted into evidence during a dispute, the letter could also prove to be compelling evidence for a judge reviewing a trustee’s exercise of discretion.

Probate and Trust Issues in Colorado’s Upcoming Legislative Session

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by Kelly Cooper

Colorado’s General Assembly will reconvene on January 8, 2014.  At this time, it appears that at least two probate and trust related issues will be the subject of debate by the Assembly.

The first is a proposed change to the Colorado Civil Unions Act that would permit partners to a civil union to file joint income tax returns if they are permitted to do so by federal law.  Under the current proposal being considered by the Colorado Bar Association, there would be changes to both the Civil Unions Act and Colorado’s income tax statutes.  This is partly in response to the issuance of Revenue Ruling 2013-17 by the Internal Revenue Service, which permits married same sex couples to file joint federal income tax returns. 

The second is a proposal to codify a testamentary exception to Colorado’s attorney-client privilege.  The necessity and proposed scope of the testamentary exception are currently being discussed by a subcommittee of the Statutory Revisions Committee of the Trust & Estate Section of the Colorado Bar Association and will likely be discussed later this week at Super Thursday meetings.

The Colorado Supreme Court has previously recognized that the attorney-client privilege generally survives the death of the client to further one of the policies of the attorney-client privilege – to encourage clients to communicate fully and frankly with counsel.  The Colorado Supreme Court has also held that a “testamentary exception” to the privilege exists, which permits an attorney to reveal certain types of communications when there is dispute among the heirs, devisees or other parties who claim by succession from a decedent so that the intent of the decedent can be upheld.

Contest A Trust While The Grantor Is Alive

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by Carol Warnick

How many times have we been told by our clients that their dad would be having a fit if he knew that one of the children was contesting his estate plan?  Or how often have we heard that mom knew there was likely to be a problem at her death, and she tried to make her trust as bullet-proof as possible, but now that she is dead some child is trying to contest it anyway? 

Wyoming and several other states across the country are amending their trust code to allow the validity of a revocable trust to be contested while the grantor is still alive.  Wyoming’s statute is found at § 4-10-604, in the middle of Wyoming’s Uniform Trust Code.  It states that a proceeding to contest the validity of the revocable trust (or an amendment thereto) can only be brought the earlier of two (2) years after the settlor’s death or one hundred twenty (120) days after the trustee sent that person a copy of the trust and a notice informing of the trust’s existence, the trustee’s name and address, and the time allowed for commencing a proceeding.  For purposes of the 120 days, notice is deemed to have been given when received by the person to whom it is given.  Absent evidence to the contrary, it is presumed that delivery to the last known address of that person constitutes receipt by that person. 

The statute makes it clear that a person failing to commence a judicial proceeding contesting the validity of the trust within the time frames listed in the statute is forever prohibited from commencing any judicial proceeding contesting the validity of the trust.

The Wyoming legislature has now given Wyoming settlors the opportunity to make sure their estate plan can’t be contested by a disgruntled child after their death.  Instead, the settlor can have the trustee send copies of the trust and the notice described above out to their beneficiaries while the settlor is still alive.  It is much less likely that the would-be-disgruntled child will decide to bring a contest while their parent is still alive and can testify about intent.  However, the settlor will have to be willing to let the children see their estate plan in order to bring this about.  Dad won’t be able to hide behind the fact that he will be dead when the kids see how dad distributed his assets among the children. 

It will be interesting to see what happens in Wyoming over the next few years and see who takes advantage of this statute to be proactive and to preclude having their revocable trust challenged after death.  Stay tuned….