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.

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.

Description or Condition?

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by Kelly Cooper

Lawyers that regularly litigate in the probate world always have an improbable story to tell.  Here is one of those stories that ended up in front of the North Dakota Supreme Court last year: 

A couple, Lee and Robyn, were engaged and planned to be married on July 18, 2009.  On June 26, 2009, Lee and Robyn signed a prenuptial agreement that required Lee to make gifts to Robyn and her daughter upon his death. 

Also on June 26, 2009, Lee executed a Will that contained the provisions to comply with the requirements of the prenuptial agreement.  The Will gave property to Robyn, describing her as “my wife, Robyn.”  The Will also stated, “My spouse’s name is Robyn Risovi and all references in this Will to “my spouse” are to her only.”  However, a footnote followed stating, “This Will has been prepared in anticipation of the upcoming marriage of …Lee Paulson and Robyn Risovi set for July 18, 2009.” 

Lee died on July 15, 2009 – three days before the wedding. 

Before you read any further, answer this question: should Robyn receive the gifts under the Will even though she was not yet Lee’s wife?

Technically, one of the questions before the North Dakota Supreme Court was whether the term “wife” being used to describe Robyn in the Will resulted in a conditional gift or whether the term “wife” was a merely a description.  In addition, the North Dakota Supreme Court had to determine whether the prenuptial agreement, which was not effective since the marriage did not occur before Lee’s death, had any impact on the interpretation of the word “wife” in the Will. 

The North Dakota Supreme Court held that the Will was unambiguous, the term “wife” was only descriptive, and ordered distribution to Robyn.  The Court held the prenuptial agreement had no effect on the interpretation of the Will for a variety of reasons.

This is just one more example of the ways that the best laid plans are derailed by unexpected events.

Estate Planners Alert: Are Your Clauses Coordinated? Are Your Terms Clearly Defined?

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by Carol Warnick

What is the definition of the "residuary" of a trust or a will? Is it clearly defined in all of our documents or do we assume that it will be easy to figure out? Or do we even think about it since we clearly know what the residuary is? I have seen several instances lately where the actual residuary was not well-defined in the document and thus became the subject of very expensive litigation.

It is not just a matter of who gets what assets, but since taxes and administrative costs often come out of the residuary, it is important to make sure it is clear what that means. In one instance I have seen, it was clearly defined where taxes were to be paid from, but very unclear as far as administrative expenses are concerned. In some estates or trusts, that might not be such a big deal because the costs may be fairly nominal. However, there may be unexpected circumstances. (What percentage of our trusts/estates actually don't have something expected arise?) What happens if the trust or estate, through no fault of its own, becomes embroiled in litigation between the beneficiaries or if the fiduciary has to defend the document against an undue influence claim? The allocation of administrative expenses in that situation can create additional litigation even after the first lawsuit has been resolved.

Remember that the attorneys chosen by a beneficiary to litigate such an issue very often are not lawyers with a background in trusts and estates. As such, they are not familiar with what many of us consider the "common sense" assumptions we make with trust and estate administration. General trust and estate concepts that we work with every day will not be recognized by attorneys outside of this practice area. When other attorneys in a litigation case ask me for authority for such concepts, the actual authority is often hard to come up with. "Because we all know that is the way it is," is not a helpful comeback. In addition, how many of our state court judges actually have a trust and estate background?

It may make sense to have someone else in your office read through the will or trust (perhaps with a prepared checklist) to look for problems like this that may arise. Often, when drafting, we become so engrossed in the document and adding in all of the "special things" that our clients request in their documents, that we don't see it when provisions don't track in the document. Often we have added in other language, and possibly deleted a sentence or two here and there, and unwittingly created another problem that we don't see because we are too close to the document. Such a problem may not only relate to defining the residuary for the purpose of tax and cost apportionment clauses, but could also easily create issues with tax clauses, conflicting powers given to the fiduciary, unintended consequences related to trustee removal and replacement, or other types of problems. Another option would be to let the document sit for a day or two and then reread it. This has to be done with a critical eye, however. It is still easy for the drafting attorney to not look critically at how the provisions might be interpreted or to think about what unintended circumstances might occur. As drafters, we know the family (or so we think) and we just tend to look to see how the document will play out in the circumstances we expect to occur.

The more trust and estate litigation I do, the more critical I become about the documents that I draft. If there is a way for a clause to be interpreted differently by a beneficiary who has a beef with the way the assets are being divided, you can bet it will be read that other way and will provide fodder for a lawsuit. It behooves all of us who draft to look for clauses in our documents that might be unclear or might be the subject of multiple interpretations. In doing so, there will be less work for those of us who litigate these cases, but we will all have happier clients years down the road.

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.

Practicing Law in Three States

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by Carol Warnick

I practice law in three Rocky Mountain states, Colorado, Utah and Wyoming.  As would be expected, there are significant differences among them, but also significant similarities.  It does provide a useful perspective with regard to the trends in estate, trust and fiduciary law — at least in the western United States.

We were living in Wyoming when my youngest of four children was ready to start school full-day, which was when I finally had the opportunity to go to law school.  Naturally, after graduating from law school, Wyoming was the first state in which I applied for admission to the bar and was admitted in 1990.  After successfully passing the Wyoming bar exam, I was surprised and pleased to be invited to apply for admission in Colorado.  Of course, I did so and waived into Colorado in 1992.  Interestingly enough, about 7 years after waiving into Colorado, we moved to Denver.  I kept some of my Wyoming clients and began building up a new practice in Colorado.  How convenient it was to already be admitted in Colorado!  I happily worked in both states, and for a while we even had a small Holland & Hart office in Casper, WY. 

After working at Holland & Hart LLP in Denver for several years, it became apparent that there was an unmet demand for an attorney with estate and gift planning expertise, as well as fiduciary litigation expertise, in our Salt Lake City Office.  The firm was willing to fly me back and forth to Salt Lake as needed to meet those needs.  I was pretty familiar with Utah since I had attended college there, so it seemed to make sense.  I actually had 3 children attending college there at the time I applied, and I was allowed to waive into Utah in 2004.  Now the stage was set.  I found myself with work in all three states and having to learn not only the differences in the law but also the variations in the accepted methods of doing things in all three states. 

As I mentioned, there are similarities and differences.  Both Colorado and Utah have adopted the Uniform Probate Code, but Wyoming has not.  Both Utah and Wyoming have adopted the Uniform Trust Code, but Colorado has not.  Colorado has had a beneficiary deed statute for several years, and the Wyoming legislature has just adopted one, but Utah does not have such a statute.  Of course, the specifics of these supposedly uniform laws as adopted by these states contain numerous variations. 

When going into court in a fiduciary litigation case, I have found the practices in the different states related to filing pleadings, getting courts to act, and what to expect at various court proceedings to be notably different from one another.  When I first started practice in Wyoming, I could simply walk over to the courthouse, visit with the judge about an uncontested matter, and get his signature on an order right then and there.  I’m not sure that can still be done, even in Wyoming, but it is certainly not an acceptable practice in Denver where we use the nonappearance docket for such uncontested matters, or in the Third District Court in Salt Lake City where the probate docket is heard every Wednesday morning.  Of course, there are significant variations in all three states between rural counties and the more populated ones.

It definitely keeps me on my toes to adapt to the setting I am in and go with the flow in the various jurisdictions in which I represent clients.  Thankfully, one constant is that there are honest and highly professional lawyers with which I have worked in each jurisdiction. 

I keep copies of the court rules and the probate and trust statutes for all three states in my office and I have learned not to rely on my memory.  I always look it up, whether it be a variation in a court rule or a difference in one of the provisions of a statute such as the probate code.  Even if I think I know, I don’t trust my memory to keep all the nuances straightened out and in the right state box in my mind.  

I have heard people say they like the practice of law because it is never the same — the issues are always new.  I agree wholeheartedly with that and when you add the complexity of practicing in three states, nothing about such a practice is boring!  My knowledge of the laws in the three states has also brought up some interesting issues for my clients who have ties to more than one of my states with regard to where to situs a trust and also possibly changing situs down the road after a trust has been established.   It is also an interesting analysis to look at where best to bring an action in those few cases where circumstances would allow them to be brought in a couple of states. 

I didn’t start out to be an attorney actively practicing in three states, it just worked out that way.  But I wouldn’t change anything about it. 

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.”

Mediator’s Moment – Before You Mediate

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By C. Jean Stewart

After serving for 16 years as the Presiding Judge of the Denver Probate Court, I resigned in 2011 to start a private practice providing neutral services to litigants and lawyers who confront conflicts around wealth transfer, fiduciary liability, estate and trust litigation and family dynamics.  My practice here at Holland & Hart’s Fiduciary Solutions practice group includes mediation services.  Some of my experiences in mediation remind me that all processes are only as good as the preparation of the participants. 

I intend to provide a few of these observations in this and future posts as an aid to lawyers and their clients in asking for, preparing for and participating in mediation.  One observation relates to the so-called “style” of the mediator.  In my scheduling letter preliminary to a mediation engagement I advise the parties and their counsel that I have had experience in both evaluative and interest-based mediation.  I think the best mediators can adapt to the facts and circumstances of individual cases in approaching the mediation process and apply one or both styles as appropriate.

Interest-based mediation in its purest form seeks to address the needs of each side, maximizes the range of solutions available and strives to allow everyone to emerge from the mediation with a settlement that is satisfying and meets felt needs.  Evaluative mediation involves largely an economic analysis that assigns values to litigation positions, evaluates risks of loss and potential for victory and helps the litigants and their lawyers arrive at a number or a non-economic resolution that closely matches the risk assessment analysis.  Both approaches have legitimacy, both can result in satisfying and lasting settlements, and both should be in your chosen mediator’s repertoire.

Another area of comparison among mediators is the predisposition to use the assembly versus caucus methods.  Some mediators insist that parties should always meet face to face to enjoy (?) the benefits of conflict resolution up close and personal.  Some mediators just as assiduously insist that parties should always meet with the mediator apart from each other and the mediator “runs interference” between their separate caucus rooms (settlement conference style).  Some lawyers find one or the other method more comfortable and pick the format based on what works best for them, not what the individuals want or need.  If you are thinking of selecting a mediator who cannot work comfortably in both formats, ask around. 

Attorneys can do a great deal to assist their clients prepare for and participate in meaningful and productive mediation.  One thing I have identified as particularly helpful is an attorney’s ability to write a good pre-mediation statement.  For many mediators, the mediation statement prepared by and presented by counsel will be the mediator’s first introduction to the project.  Attorneys who approach the work as if it was a legal brief will put both the mediator and their own client at a disadvantage.  When I advise counsel to “tell me what this case is about” I do not mean that I want to hear about the Rule 12(b) motion that was erroneously ruled on by the court and will almost certainly be reversed on appeal, about the discovery abuses that have delayed the trial setting and will undoubtedly attract sanctions, or about the . . .  — I want to hear the story.  An attorney who hopes to successfully represent a client in mediation needs to understand and be able to relate the story at the heart of their client’s lawsuit.  A well-written narrative can set the stage for a mediator who often knows little or nothing about the litigation that is pending or unfolding and provide the foundation for a successful and efficient mediation session. 

Civil Unions Legislation Effective May 1, 2013

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by Kelly Cooper 

In 2012, a law that would have permitted same-sex partners to enter into civil unions in Colorado failed.  In this year’s legislative session, advocates for civil unions were successful and on May 1, 2013, the Colorado Civil Union Act will become effective. 

The Act provides same-sex partners the benefits, protections and responsibilities given to spouses under Colorado law if they enter into a civil union.  In addition, the Act provides that civil unions, domestic partnerships and other legal relationships between same-sex partners created in other states will be treated as civil unions in Colorado.

Even though the Colorado Constitution (by a 2006 amendment) limits marriage to a man and a woman, the Act provides that all Colorado laws granting rights to man and woman spouses will now grant the same rights to partners entering into civil unions.   

This means, for example, that if partners wish to dissolve their civil union, they will need to file for a legal dissolution and that the laws regarding maintenance, parenting time, child support and property division will apply.

The Act does not alter the impact of the federal Defense of Marriage Act (DOMA), which provides that marriage is only between a man and a woman.  As a result, federal laws granting rights to spouses will not apply to partners in a civil union.  The United States Supreme Court is currently considering a challenge to DOMA.  An opinion is expected from the US Supreme Court in June 2013.  We can expect more developments and changes in this area in the near term, so stay tuned.