Archive for category: Trustee

Trust Disclosure Requirements and Quiet Trusts

/in , , , , , ,

by Carol Warnick

The Uniform Trust Code and the Restatement (Third) of Trusts both follow the presumption that trust beneficiaries should be generally kept aware of the existence of the trust, their status as beneficiaries, and their right to ask for (and receive) further information about the trust and their rights as beneficiaries of the trust. Both also require accountings, at least upon request.

More than two-thirds (2/3) of states in the United States have adopted some form of the Uniform Trust Code as of this writing, but many states have not adopted the disclosure provisions from the Uniform Act. This reflects the feeling voiced by many trust creators that letting a beneficiary be aware of the wealth in a trust set up for the beneficiary’s benefit can be a disincentive for a beneficiary to make their own way in life. This is especially a concern if the beneficiaries are young, or even older beneficiaries that have proclivities towards spending. Many trust creators are also concerned because the sub-trusts they set up for their children don’t have identical provisions, therefore they don’t want their children to know about the provisions in their siblings’ sub-trusts. Read more

Discounted Assets and Funding Challenges in Estate Administration

/in , , , , ,

by Kami Pomerantz

Estate of Miriam M. Warne, T.C. Memo 2021-17 (February 18, 2021)  (“Warne”), a recent Tax Court case, illustrates a potential mismatch between the value of an asset for estate tax purposes and the value of the asset for purposes of the marital or charitable deduction from estate tax.  This mismatch can lead to a phantom loss of estate value for purposes of such deductions and cause an inadvertent estate tax surprise.  Although this mismatch can be avoided, it requires those drafting specific gifts and administering an estate to choose assets carefully when making bequests and funding decisions.

Read more

Trustees Beware: Provide Timely Information to Beneficiaries

/in , , , , , , ,

by Carol Warnick

Individual trustees often fail to fulfill the duties imposed on trustees, not only by the trust instrument, by also by the trust statutes applicable in the jurisdiction.  It is often the case that the individual trustee is a member of the family and seems to believe that the rest of the family won’t care if he or she doesn’t follow the applicable statutory and trust requirements.

A recent Nebraska case, In Re Estate of Forgey, 906 N.W. 2d 618, (Neb. 2018), featured a decedent who died in 1993.  By 2013, when one of the family members initiated litigation, the trustee, a son of the decedent, had neither distributed out the property of the trust into the separate shares called for by the trust document, nor had provided annual accountings to the beneficiaries as required by both the Nebraska statutes and the trust document itself.  In addition, he failed to sign and file the timely prepared federal estate tax return, resulting in an IRS assessment of penalties and interest of over $2 million. 

Read more

Reminder – Mandatory Notice Provisions in CUTC

/in , , , , ,

by Brooke Simons

As we have just passed the one-year anniversary of the CUTC being signed into law, now seems like an appropriate time to go over a few reminders with regards to its mandatory provisions – in particular the Notice provisions. 

The CUTC is generally considered to be a default statute – that is, a statute that can be overridden by the settlor’s intent as reflected in deliberate drafting of the trust instrument.  However, there are thirteen (13) mandatory provisions in the CUTC that cannot be drafted around, regardless of the settlor’s intent.  Section 15-5-105 lists the thirteen (13) mandatory provisions under the CUTC.  Amongst these thirteen provisions are two “notice” requirements that must be satisfied. 

Read more

Wyoming Creates a New Chancery Court Which Will Hear Trust Cases

/in , , , , , , , , , ,

by Carol Warnick

Wyoming has created a chancery court which will be authorized to hear cases in fifteen (15) specific areas, including cases alleging breach of fiduciary duty and transactions governed by the Wyoming Uniform Trust Code, in addition to hearing business disputes.  This represents a significant change in the way many trust disputes, as well as business disputes, will be handled in Wyoming. 

Effective March 15, 2019, the special court of limited jurisdiction, called the Chancery Court of the State of Wyoming, was authorized to assist in the expeditious resolution of disputes involving commercial, business, trust and similar matters.  It is directed “to employ nonjury trials, alternative dispute resolution methods and limited motions practice and shall have broad authority to shape and expedite discovery as provided in the rules adopted by the supreme court to govern chancery courts.”  WYO. STAT § 5-13-115 (a). 

Read more

Your Secret’s Safe with Your Estate Planning Attorney, Or Is It?

/in , , , , , , ,

by Lauren A. Morris

A mother visits her attorney to discuss her estate plan. She expects that the conversations she has with her attorney will be forever confidential and privileged, particularly when she wishes to guard uncomfortable realities from her family members, such as her desire to disinherit her son. Upon the mother’s death, her disinherited son figures out that he is in fact removed from her estate plan. Here we have the classic scenario in which a snubbed child wants to challenge the provisions in the estate plan to prove that the decedent did not intentionally fail to provide for him. But with the mother now deceased, how do we determine her actual intent?

The mother’s estate planning attorney is in the next best position to ascertain her intent, but doesn’t the attorney’s duty of confidentiality to the mother prevent him from disclosing any information he may have regarding her intent, specifically when the mother thought she was speaking in confidence? Read more

No Contest Clauses – Not Just for Wills

/in , , , , , , , ,

by Matthew Skotak

Fiduciary litigation continues to grow and often times outpaces the development of case law regarding the myriad of issues that arise in estate and trust disputes.  Historically fiduciary litigation involved disputing family members or changes in family circumstances.  However, another frequent source of litigation is the estate planning documents themselves.  For this reason, estate planners often include a no contest clause, or in terrorem clause, in a will or trust as a means of deterring feuding beneficiaries from challenging the validity of the instrument; yet, enforcement of these no contest clauses carries its own burden.

A no contest clause is more frequently contained in a will, although it can also be prudent to include these provisions in trusts – especially when the underlying concern is to discourage litigation over the decedent’s estate plan by disinheriting a person who unsuccessfully contests the will and/or trust.  The enforceability of these provisions varies from state to state; however, Colorado has determined that a no contest clause is valid when the contesting party lacks probable cause to bring their challenge.  See Colo. Rev. Stat. §§ 15-11-517, 15-12-905.  Read more

Prudently Investing: What Trustees Need to Know

/in , , , ,

by Matthew Skotak

Acting in the best interests of the trust and the trust beneficiaries, a trustee has the duty to protect and preserve trust assets and, generally, to make the assets productive. In making investment decisions and managing trust assets, the trustee must further abide by the “prudent investor rule,” which requires a trustee to exercise reasonable care, skill and caution. See Colo. Rev. Stat. §§ 15-1.1-101, et. seq. (the “Uniform Prudent Investor Act”) and §§ 15-1-1101, et. seq. (the “Uniform Management of Institutional Funds Act”).

Pursuant to the prudent investor rule, a trustee should consider broad investment factors, such as: current economic conditions, effects of inflation or deflation, tax consequences, the nature of closely-held business interests, alternative investments, expected returns on income and capital, other resources of the trust or trust beneficiaries, the need for liquidity versus preservation of capital, the production of income, the special value or relationship of a particular asset to the trust or the beneficiaries, diversification of investments, and more. See, Restatement (Second) of Trusts § 227. Additionally, while it is important to note that Colorado courts have not officially adopted the Restatement (Third) of Trusts, one could refer to § 90, which lists five helpful “principles” of the prudent investor rule. Generally, any single investment will not violate the prudent investor rule and the trustee should manage the trust portfolio as a whole taking into account these considerations. Read more

Is the Statute of Limitations Really Running?

/in , , ,

by Matthew Skotak

The concept of a statute of limitations is easy to understand: a lawsuit has to be commenced within so many years after the complained of act occurred or pursuit of the lawsuit may be forever barred.  Where it gets tricky are the exceptions to this rule.  For example, if the wrongdoer concealed the wrongful act or the wrongful act occurred in some way that made it highly unlikely that the aggrieved person would know about it, then the statute of limitations should not start running until the injured person knows or through reasonable diligence should have known about the wrongful act.  This “tolling” of the statute of limitations is typically referred to as the discovery rule: the statute of limitations doesn’t start running until a plaintiff knew or reasonably should have known of the alleged wrongful act.

Not all states apply the discovery rule, and not all states apply it to every cause of action. However, many jurisdictions apply the discovery rule to fiduciary related actions.  As an example, the equitable discovery rule was applied in Utah to a lawsuit regarding a trust. Read more

Generative Trusts and Trustees: A New Paradigm For Trust Design and Administration

/in , , , ,

Note:  From time to time we invite guest bloggers to share their thoughts on our blog.  The following is a guest blog authored by John A. Warnick, the founder of the Purposeful Planning Institute.

by John A. Warnick, Esq.

Family Trusts commonly preserve family financial asset, but fail to preserve either family or trust—Hartley Goldstone, author of Trustworthy and Co-Author of Family Trusts – A Guide for Beneficiaries, Trustees, Trust Protectors and Trust Advisors

I have been concerned about the emotional and relational impact of trusts since I had a “professionally jarring” encounter in 2001 with a beneficiary of an irrevocable trust established by her grandfather.  The dependency, disempowerment and entitlement I witnessed led me to ask “Is there a better way?”  

The Generative Trust and the Generative Trustee are part of that better way.

I’m convinced there is a better way to think about the purpose and meaning of trusts which still honors the legal roles and responsibilities but lifts the influence of the trust to the point it becomes a generative (positive) influence in the lives of beneficiaries. Read more