Fiduciary Law Blog Archive – Page 11

Personal and Family Lending: New Federal and Colorado Regulations

April 27, 2016/in Fiduciary Discretion, Fiduciary Duties, Fiduciary Litigation, Legislation, Trustee

by Desta K. Asfaw

There have been a number of recent changes to the mortgage lending laws. Under current law in Colorado, certain private loans secured by residential real estate may be subject to compliance with strict licensing and other requirements. Failure to comply could potentially result in misdemeanor charges and/or fines.

These new obstacles stem from provisions of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), and the Colorado Mortgage Loan Originator Licensing and Mortgage Company Registration Act (“CMLO Act”).

Is Any Family at Risk for Competency Disputes?

April 25, 2016/in Conservator, Court Procedures, Elder Law, Guardian, Powers of Attorney, Testamentary Capacity, Undue Influence

by Matthew Skotak

Casey Kasem (famed American Top 40 DJ), Tom Benson (owner of the NBA’s Pelicans and NFL’s Saints), and Sumner Redstone (controlling shareholder of Viacom and CBS) have much in common: wealth, prestige, and status. Though many may envy their fortune and fame, they may not envy their other common thread; competency disputes.

When Casey Kasem’s health deteriorated from Parkinson’s disease, an ugly court battle ensued between his children and his wife, which did not end until he died. A challenge to Tom Benson’s competency arose after he decided to vest controlling interest in the Saints and Pelicans with his wife, and lock-out his other heirs from those teams. Similarly, Sumner Redstone’s competency was challenged by his longtime companion, Manuela Herzer, after she was removed as his health care agent and was kicked out of his California mansion. These conflicts are public and recognizable, however, thousands of similar anonymous disputes occur every day across the country involving ordinary families.

Thoughts from the Bench on Trust and Estate Litigation

March 29, 2016/in Court Procedures, Fiduciary Litigation

by Carol Warnick

I recently read an article in the Utah Bar Journal¹ that provides thoughtful insights into the area of trust and estate litigation in Utah based upon a recent survey to current and past Utah district court judges. As a trust and estate litigator who actively practices in Utah, Colorado, and Wyoming, I was most interested in what the district court judges had to say about the trust and estate cases they had either tried or dealt with on summary judgment motions. Some of their observations are particularly important to any lawyer practicing in this space either as an estate planner or a trust and estate litigator. Planners most certainly benefit from understanding these controversies from the judge’s perspectives, since it is the planner’s documents that will be front and center in the litigation of any contested case.

One of the most important points set forth by Mr. Adams is to remind the parties that the assets everyone is fighting about actually belong to someone else. The person who sets up the will or the trust gets to decide who gets the assets, and that decision doesn’t have to be logical or even what others might consider “fair.” It may also contravene what the decedent has previously stated orally to a family member or members. But the court is placed in the position of doing its very best to see that the decedent’s estate plan, whatever it may be, is carried out.

Your Fiduciary Duty to Invest “Prudently”

March 14, 2016/in Administration of Trust, Fiduciary Discretion, Fiduciary Duties, Fiduciary Litigation, Trustee

by Elizabeth Meck

As promised, this is the second post in a series on the fiduciary duties of a trustee. In the first blog in this series, we discussed the fundamental duty of loyalty. In this post, we will discuss the trustee’s duty to exercise care and skill in the management and investment of trust assets.

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.

The trustee must also abide by any specific instructions in the trust instrument. He should exercise caution in doing so, however, because there are many instances in which blindly following the trust terms may result in unreasonable investment decisions. For example, if the settlor instructs the trustee that he is not required to diversify investments in the case of a closely-held family entity, the trustee would still want to closely monitor the performance of such investments to ensure that the closely-held entity value is not plummeting to the point that the beneficiaries’ interests may be significantly impaired.

It is important to note that poor performance of investments alone will not subject the trustee to a claim for breaching his duties to prudently invest. Beneficiaries frequently and incorrectly think they will have a claim against a trustee simply for poor performance. The trustee, however, will be able to overcome such a claim so long as the underlying investment decisions were reasonably made.

Colorado law does authorize a trustee to hire professionals and to delegate certain aspects of investing and portfolio management. However, the law does not allow for wholesale delegation and the trustee should exercise great caution in hiring professional advisors or fund managers. See Colo. Rev. Stat. §15-1.1-109 (trustee has the authority to delegate investment and management functions, but must engage and monitor such professionals carefully); see also GEORGE G. BOGERT, ET AL, The Law of Trusts and Trustees § 557; Colo. Rev. Stat. §15-1-804(2)(x)(I)(trustee has the power to “employ attorneys or other advisors to assist the fiduciary in the performance of his or her duties” (emphasis added)).

Finally, a trustee should keep in mind that uninformed beneficiaries are uneasy beneficiaries. Not only is it a good idea for a trustee to provide information to the beneficiaries as to investment and asset management decisions, Colorado law requires the trustee to keep beneficiaries “reasonably informed” and to provide accountings to beneficiaries upon reasonable request. Colo. Rev. Stat. § 15-16-303. Keeping beneficiaries informed as to investment decisions not only provides peace of mind to the beneficiaries, but may provide the trustee with an argument particularly in the situation where the beneficiaries have consented to risky or unusual investment strategies. See Beyer v. First Nat. Bank of Colorado Springs, 843 P.2d 53 (Colo. App. 1992).

In sum, the trustee has a duty to continually observe and evaluate investments to ensure that they are consistent with the purpose of the trust, current economic conditions, and the needs of the current and remainder beneficiaries. So long as the trustee exercises reasonable care in investment decisions, exercises care in selecting and hiring investment advisors and professionals, follows the general principles of prudent investing, and keeps the beneficiaries informed, the likelihood of a claim against the trustee for improper investment decisions may be reduced.

Colorado Supreme Court Upholds the Strict Privity Doctrine for Attorney Malpractice Claims

January 25, 2016/in Administration of Estate, Administration of Trust, Court Procedures, Fiduciary Litigation, Legislation, Personal Representative, Testamentary Intent

by Kelly Dickson Cooper

The Colorado Supreme Court upheld the strict privity doctrine for attorney malpractice claims by nonclients and reaffirmed that an attorney’s liability is limited to when the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation. Baker v. Wood, Ris & Hames, case number 2013SC551 (2016 CO 5).

In Baker, the dissatisfied beneficiaries sued the attorneys for their father and alleged as follows:

The attorneys failed to advise their father of the impact of holding property in joint tenancy.
The attorneys failed to advise their father that failing to sever those joint tenancies would frustrate his intent to treat his children equally with his stepchildren.
The attorneys’ actions allowed the surviving spouse to change their father’s estate plan after his death.
The attorneys drafted documents for the surviving spouse that were different from their father’s original plan.
The beneficiaries were the intended beneficiaries of the client’s plan, that the attorneys failed to advise the beneficiaries of the relevant facts, and that they had suffered damages as a result.

The beneficiaries asked the Colorado Supreme Court to adopt the “California Test” or the “Florida-Iowa Rule” and set aside the strict privity rule. The Court rejected the adoption of both tests and reaffirmed the strict privity rule. The Court also held that the beneficiaries’ claims would fail under both the California Test and the Florida-Iowa Rule.

The Court put forth the following rationales for upholding the strict privity rule in Colorado:

It protects the attorney’s duty of loyalty to the client and allows for effective advocacy for the client.
Abandoning strict privity could result in adversarial relationships between an attorney and third parties. This could result in conflicting duties for the attorney.
Without strict privity, the attorney could be liable to an unforeseeable and unlimited number of people.
Expanding attorney liability to nonclients might deter attorneys from taking on certain legal matters. The Court reasoned that this result could compromise the interests of potential clients by making it more difficult to obtain legal services.
Casting aside strict privity would increase the risk of suits by disappointed beneficiaries. Those suits would cast doubt on the testator’s intentions after his or her death when he or she is unavailable to speak.
The beneficiaries have other avenues available to them, including reformation of the documents.
A personal representative can pursue legitimate claims on behalf of a testator.

The Court held, “We further believe that the strict privity rule strikes the appropriate balance between the important interests of clients, on the one hand, and non-clients claiming to be injured by an attorney’s conduct, on the other.” As a result, the strict privity rule remains intact in Colorado.

Mediator’s Moment—Obstacles to Successful Mediation

January 19, 2016/in Fiduciary Litigation, Mediation

by C. Jean Stewart

A successful mediation requires that the parties feel satisfied both with the process and with the outcome. Several obstacles can interfere with the parties reaching satisfaction on either or both standards. Counsel often contribute to this failure. Here are some tips on avoiding these disappointments and helping clients achieve a satisfactory outcome.

Reluctance to participate. One obstacle to successful mediation is the failure of parties to engage in a meaningful process. Some are fearful that discussing the issues underlying litigation could be perceived as a sign of weakness and hence adopt intransigent positions that yield no room for meaningful exchange. Unfortunately lawyers can sometimes get caught in this trap as well. Particularly in emotionally charged litigation, where attorneys come to identify with their clients’ positions, counsel may decline to work cooperatively on peripheral issues or even on the primary conflict in the case because of concern that talking about the dispute itself will undermine their litigation posture. In my experience, calmly and rationally explaining to opposing counsel/parties why and how one has come to a position rarely if ever diminishes the argument and, in fact, often contributes to the other side’s better understanding of the conflict and, ultimately, to resolution.

Misunderstanding of Opposing Party’s Position. One of the most common obstacles that I see in mediating estate and trust cases is a complete misapprehension of the feelings, attitudes and positions of the other side. Unfortunately, many attorneys contribute to this roadblock. As part of my preparation for mediation, I require both counsel and the parties to present brief statements of position. In too many mediation statements, I learn that the arguments and positions expressed are based on a total misunderstanding of what the other side is thinking and has expressed to me in their presentation of the case. It is hard to overestimate how many times I have been told “We want to settle but the other side doesn’t” – by both sides! As a mediator, I work hard to get the parties and their counsel to devote appropriate time to active listening in advance of or during the mediation session to try to separate these misunderstandings from reality.

Negotiating Styles. While almost everyone has had some life experience with negotiations, even if only in the experience of raising children (think toddlers and teenagers), many people, including many lawyers, have immature notions of the theory and practice of negotiations. When parties and their counsel are spending a majority of their time focused on how to negotiate, they frequently lose sight of the important issues in the mediation and fail to reach a resolution that meets their needs and puts the litigation to rest. Parties and lawyers who cling to notions about the effectiveness of techniques like “we refuse to make the first offer,” or “if we offer ‘x’ they will counter with “y” and then we will offer “z”, etc., etc. or “this is absolutely our last offer,” are often relying on inappropriate notions of what contributes to effective negotiation and have lost sight of the real issues and personalities in the case at hand.

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Disclaimer

This publication is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal or financial advice nor do they necessarily reflect the views of Holland & Hart LLP or any of its attorneys other than the author. This publication is not intended to create an attorney-client relationship between you and Holland & Hart LLP. Substantive changes in the law subsequent to the date of this publication might affect the analysis or commentary. Similarly, the analysis may differ depending on the jurisdiction or circumstances. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.