Forgotten, But Not Lost

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by Jody H. Hall, Paralegal

I have been working with a client whose mother passed away more than ten years ago.  Due to the passage of time, mergers, corporate name changes and stock splits, and a variety of other circumstances, quite a bit of her property had been turned over to the State of Colorado as unclaimed property.  However, contrary to what some may believe, all is not lost!  These assets still belong to her, and in this case, to her legal heirs.  The claims process is relatively easy and can even be initiated online – you just have to start the search!

The Great Colorado Payback (the “GCP”) is a division of the Colorado State Treasurer.  They are charged with “reuniting Coloradoans with their lost or forgotten assets” – what an amazing job description!  The GCP regularly receives proceeds of bank accounts, stock certificates and dividends, oil and gas royalty payments, utility refund payments, the contents of safe deposit boxes and more from “holders” (financial institutions or other entities in possession of these assets) that have lost contact with the rightful owner.  The current list maintained by the Colorado State Treasurer contains more than 1.7 million names!

Our firm routinely recommends that our newly-appointed personal representatives check the state’s website for any unclaimed (sometimes referred to as abandoned) property for recently deceased individuals.  A GCP representative recently educated me about the dormancy period, which is 5 years from the last customer-initiated contact.  Holders typically do not turn over the accounts to the GCP until the expiration of this dormancy period.  Going forward, I will begin to check the GCP list again immediately prior to closing an estate in order to ensure that no assets belonging to the decedent, but not discovered by the personal representative (for example, statements may not be sent to the owner, and therefore received by the PR, if the holder had an old address), have been reported during the pendency of the estate (or trust) administration.

In addition to the Unclaimed Property List, the GCP office maintains an Estate of Deceased Owners and Dissolved Corporations List.  Pursuant to escheat law, it is not until twenty-one years after an estate is probated or a corporation dissolved, and their funds are turned over to the State Treasury that those funds become property of the State and are deposited into the Public Education Fund.  So even for a probate estate where there are no known heirs at the time of the estate administration, there is still time for the rightful heirs, should any be located, to receive their inheritance.  Please note that the proper claim procedure in this instance involves obtaining an order of distribution from the probate court.

For more information or to check to see if a client (deceased or alive), or even YOU, have forgotten assets on the list, go to www.colorado.gov/treasury/gcp/.  For links to other states, check out www.MissingMoney.com or www.unclaimed.org.

Be sure to consult the FAQ’s and instructions on the website to include all of the required information for your claim, particularly with assets of deceased individuals.  Now that you have found the lost assets, you do not want missing paperwork to delay your receipt even longer.

Happy searching!

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.

Tax Certainty for Civil Unions in Colorado

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by Kelly Cooper

Couples in a civil union that are permitted to file federal income tax returns jointly can now file their Colorado income tax returns jointly as well.

Governor Hickenlooper signed the bill into law last Thursday (February 27, 2014).  It requires couples in a civil union to file their Colorado taxes using the same filing status used on their federal tax return.  The intent of the legislation is to align Colorado with updated federal tax law that permits joint filing for married same sex couples.

The new law will apply to tax years beginning on January 1, 2013 and any other income tax years that are still open under Section 39-21-107 or 39-21-108, C.R.S.

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.

Can an LLC Survive the Death of the Sole Member?

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by Carol Warnick

What happens when the sole member of an LLC dies without making provisions for succession?  Does the LLC automatically dissolve with the assets being forced to be distributed through the decedent’s estate?  Alternatively, is there some way for the personal representative to save the LLC and to assume the position of the sole owner during the administration of the estate, thus allowing time to figure out how to handle the ultimate distribution of the LLC?  When the decedent operates a viable business in a single member LLC, significant value can be lost to the estate if the LLC is dissolved upon the death of the sole member. 

Those of us in Colorado are fortunate enough to be operating under a statute that give us some flexibility.  Under Colorado law, if the operating agreement of the single-member LLC does not address the circumstances on the dissociation of the member the statute provides as follows:

7-80-701. Admission of members

(2) At any time that a limited liability company has no members, upon the unanimous consent of all the persons holding by assignment or transfer any of the membership interest of the last remaining member of the limited liability company, one or more persons, including an assignee or transferee of the last remaining member, may be admitted as a member or members.

There is no dissolution provided that the assignee appoints or becomes a member:      

7-80-801. Dissolution – time and notice of dissolution

(1) A limited liability company formed under this article is dissolved:

(c) After the limited liability company ceases to have members, on the earlier of:

(I) The ninety-first day after the limited liability company ceases to have members unless, prior to that date, a person has been admitted as a member; or

(II) The date on which a statement of dissolution of the limited liability company becomes effective pursuant to section 7-90-304.

If 90 days have elapsed since the sole member’s death, the LLC dissolves, but it may be resurrected pursuant to 7-90-1001 and 1002  (note that the assignee has the power to act on behalf of the dissolved LLC (7-80-803.3(2)). (“The legal representative, assignee, or transferee of the last remaining member may wind up the limited liability company's business if the limited liability company dissolves.”) It could also wind up by merging with a non-dissolved LLC which may continue the business of the dissolved LLC.

This means that if we have an estate where the sole member of an LLC which is operating a business dies with no provision for succession, the statute not only provides a way to keep the LLC (and thus the business) alive until the ultimate distribution of the LLC interests, but it even allows for reinstatement of a dissolved entity should the personal representative not act quickly enough.  This is a great advantage for personal representatives dealing with this particular situation in Colorado.   A growing number of other states are specifically addressing the dissociation of the last member, similar to Colorado, but almost no other states permit the reinstatement of a dissolved entity in this manner. 

(The author gives thanks to Robert Keatinge, her colleague here at Holland & Hart, for his insight and significant contributions not only to the LLC statutes in Colorado but for his assistance with the content of this blog.) 

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.

Fiduciary Solutions Symposium Recap

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by Kelly Cooper

Last week, we held our first Fiduciary Solutions Symposium.  We want to thank each of you that came and participated.  We enjoyed seeing all of you and getting a chance to catch up with you over breakfast.

For those of you that couldn’t attend, here is a brief recap.  When we discussed topics that we wanted to present at the Symposium, we kept coming back to the constantly evolving and changing nature of our practices.  Whether it is taxes, ADR or changes in state laws, things never stay the same.  As a result, we decided to discuss a variety of topics and the trends we are seeing each day in our practices.  It was difficult to narrow down the topics to two hours of content, but we ended up discussing the following issues:

  • Digital Assets
  • Social Media and Use in Litigation
  • Gun trusts
  • Civil Unions/Same Sex Marriage and related tax issues
  • Reformation and modification of trusts and decanting
  • Apportionment and allocation of taxes and expenses in administration
  • Baby boomers and the “Silver Tsunami”
  • Migratory Clients and Differing State Laws
  • Trends in Alternative Dispute Resolution
  • Assisted Reproductive Technology

 We had so much fun that we are taking the show on the road and will be in Salt Lake City on November 12th.  We hope to see you there.

Charities are Beneficiaries Too!

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by Jody H. Hall, Paralegal

“No, you cannot have it.  The trust is a private document” – Well, maybe, but not to the exclusion of the beneficiaries, and I mean ALL of the beneficiaries, named in that testamentary instrument.

Prior to returning to Colorado a few months ago, I worked in the Legal Department for a national charity where the responsibility of my team (totaling more than 8 attorneys, paralegals and staff) was to represent the charity’s interests in trust and estate matters around the country.

Coming from a background as a trusts and estates paralegal for well-respected law firms, I was absolutely shocked at the number of times that attorneys or fiduciaries (both professional and individual) would respond in the negative to a request for a copy of the will or trust or financial information regarding the gift of which we had just received notice.  There seemed to be this prevailing attitude that, because we were a non-profit organization, we would simply take whatever we were given or what was left over and be grateful for it, even in large trusts or estates where the designated gift was a portion or entirety of the residuary estate.  Unfortunately there was not a consistent understanding that if Charity XYZ and Cousin Sue are each to receive one-half of the residuary estate, they need to be treated equally.

Most charities do not intend to be adversarial or difficult.  Any money spent on legal fees reduces the ultimate charitable gift of the donor; however, they have a fiduciary obligation to the ultimate beneficiaries of their particular mission to ensure they receive everything to which they are ENTITLED!  In Colorado, that means a copy of the terms of the trust which affect the interest; other jurisdictions require a complete copy of the instrument, including codicils and/or amendments.  Almost every jurisdiction requires providing at least some information about the assets or accountings.

As with many things in life, upfront communication is usually the best policy.  My experience working for a “professional beneficiary” has reinforced and taught me several things about good estate and trust administration communications.  Provide an initial notification as soon as possible at the beginning of the trust or estate administration.  Provide periodic updates.  If there are assets that may take some time to sell, litigation or any other factors that may delay the distribution, let your contact know and they will calendar their system accordingly.  I know that I was less likely to question or challenge things when I received regular contact from the attorney or fiduciary.

So if the Decedent has been deceased for several years and you are just now sending a check for several hundreds of thousands of dollars as their first notification of the gift under a will or trust, do not be surprised if the charity requests additional information (including, but not limited to, the testamentary documents, an inventory or list of assets and an accounting) before signing a waiver or release.  After all, charities are beneficiaries too!

Dangers in Charitable Giving – Colorado’s Attorney General Takes Action Against Charities

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by Kelly Cooper

Normally, when the topic of charitable giving comes up with a client, the discussion is a positive one.  The client is excited about the great work being done by a charity, wants to ensure that their charitable work is continued after their death or has a desire to create a legacy.  However, when representing clients that are fiduciaries who are making distributions for charitable purposes, a danger lurks – donating money to a corrupt or fake charity.

This danger was brought to the forefront last week in Colorado when Attorney General John Suthers filed suit against Boobies Rock! Inc., the Se7ven Group, Say No 2 Cancer and owner Adam Cole Shryock.  In the lawsuit, the Attorney General has claimed that these charities deceived consumers into thinking they were donating money to a cancer-related charity when consumers were actually giving money to a for-profit business that provided only small amounts to charity.  Allegedly, the charities would hire models to take donations on behalf of Boobies Rock! at various venues and events and tell people that their donations would go to other charities fighting breast cancer.  The Complaint filed by the Attorney General also alleges that these charities used the names of other legitimate charities in its fundraising efforts without their consent and that Mr. Shryock used a portion of the funds collected to pay for an online dating service, buy a BMW, pay for his cleaning service, and pay his bar tabs.

This is a harsh example, but is a good reminder to counsel clients to thoroughly investigate any charity they wish to give to and any charitable solicitation they receive.  To read the Complaint filed by the Attorney General, click here.

Payment of College Expenses for Beneficiaries – To Pay or Not to Pay?

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By Kelly Cooper

Fiduciary clients regularly ask me what expenses can be paid out of a trust.  Generally, this requires an examination of the terms of the trust and the applicable law.  However, even after considering the terms of the trust and applicable law, trustees are often stuck in this grey area trying to determine what expenses may be paid.  As a result, I am always on the lookout for cases that might provide guidance for trustees in exercising their discretion.  Recently, a case from New York caught my eye.  Matter of McDonald, 100 A.D. 1349 (N.Y. App. Div. 4th Dep’t 2012).

In this case, the grandfather created a trust for his twin granddaughters and appointed his daughter (the twins’ mother) to serve as trustee.  As trustee, the mother refused to pay for the twins’ college expenses and to purchase a car for their use.  The twins filed suit and asked the court to remove their mother as trustee and to award attorney fees.

The trial court removed the mother as trustee, bypassed the named successor trustee and appointed an attorney (who was not named in the trust) to serve as successor trustee.  The trial court found that the mother had failed to observe the terms of the trusts and had abused her fiduciary responsibilities and awarded attorney fees to the twins.  The mother appealed and the trial court was unanimously reversed.

In reversing and finding in favor of the trustee, the appellate court cited to Section 50 of the Restatement of Trusts and identified the following factors:

The terms of the trust.  The relevant terms of the trust were stated as follows: “[t]he Trustee shall pay or apply to or for the use of each such living grandchild of mine so much of the income, accumulated income and principal of such share at any time and from time to time as the Trustee deems advisable in [the Trustee’s] sole discretion not subject to judicial review, to provide for such grandchild’s maintenance, support, education, health and welfare, even to the point of exhausting the same.”  The trust also provided for fractional distributions to the twins at ages 30 and 32 and termination of the trust at age 35.

Other resources.  The court noted that one of the twins’ college expenses were paid in full by public benefits and that the other twin had failed to even complete the necessary applications for public college benefits and tuition assistance.  Further, the twins both had New York 529 College Savings accounts and the balances in those accounts were sufficient to pay college expenses.

Friction.  The appellate court noted that there was friction between the mother and her teenaged daughters, but found that mere friction or disharmony between a trustee and a beneficiary is not sufficient grounds to remove a trustee.   The appellate court quoted another New York case, stating, “If it were, an obstreperous malintentioned beneficiary could cause the removal of a competent trustee through no fault on the latter’s part.”