Archive for category: Surcharge of Fiduciary

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.

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.”