About the Firm
Holland & Hart is a full-service law firm with locations in 14 offices. Throughout the Mountain West, from coast to coast and beyond, Holland & Hart provides clients with sharp legal counsel from a vantage like no other. For more information, visit www.hollandhart.com or on Twitter: @HollandHart.
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.
Privacy Policy
View our privacy policy.
Now There Are Tax Transcripts In Lieu of Estate Tax Closing Letters
/in Administration Expenses, Administration of Estate, Fiduciary Duties, Personal Representative, Trusteeby Carol Warnick
The Internal Revenue Service (“IRS”) announced earlier this year that it would no longer routinely send out an estate tax closing letter and that such letters would have to be specifically requested by the taxpayer. The change in procedure was effective for all estate tax returns filed after June 1, 2015.
Previously, an estate tax closing letter was evidence to show that the IRS had either accepted an estate tax return as filed, or if there has been an audit, that final changes had been made and accepted. Receipt of an estate tax closing letter has never meant that the statute of limitations on the return has run, but it has given comfort to the estate administrator that he or she could make distributions and/or pay creditors knowing that the chances of further IRS review of the return was not likely. Many personal representatives and trustees have made it a practice to wait for such a closing letter before funding sub-trusts or making any significant distributions.
On December 4, 2015, the IRS announced that “account transcripts, which reflect transactions including the acceptance of Form 706 and the completion of an examination, may be an acceptable substitute for the estate tax closing letter.” Such account transcripts will be made available online to registered tax professionals using the Transcript Delivery System (TDS). Transcripts will also be made available to authorized representatives making requests using Form 4506-T. They still must be requested, but may be easier to obtain than an estate tax closing letter.
For further instructions, here is the link to the information on the IRS website: http://tinyurl.com/plhb6f6.
Statutes of Limitation in Probate Litigation: Friend or Foe?
/in Fiduciary Litigationby Elizabeth Meck
Generally, the statute of limitations for the probate of a will or any action related thereto is three years after the death of the testator. See § 15-12-108(1), C.R.S. (2015); Matter of Estate of Kubby, 929 P.2d 55, 56 (Colo. App. 1996). Section 15-12-108(1) states that “[n]o informal probate or appointment proceeding or formal testacy or appointment proceeding . . . may be commenced more than three years after the decedent’s death… [.]”
Statute of limitations issues related to wills frequently arise in the context of will contests, which fall within the three year statute of limitations set forth in § 15-12-108(1). A will contest may be initiated in one of two primary ways: (i) by filing a petition in the appropriate court to request determination of the validity of the will instrument itself (or whether another valid will exists or any valid will exists at all); or (ii) by filing an objection within an existing probate proceeding in which a will has been probated formally or informally. Will contest actions include those in which the will signing itself is called into question (e.g., the adequacy of the witnesses, the number of witnesses present, fraud, mistake, and, if the will is a handwritten document, whether it meets the requirements of a holographic will under Colorado law under § 15-11-502), or the capacity of the testator to execute a valid will is in question.
Legal capacity to execute a will is known as “testamentary capacity” and requires that the testator understand what he is doing and the ultimate distribution of his property. The Colorado Jury Instructions set forth the factors to determine testamentary capacity. See CJS 3d § 34:9 (specifying that a testator must understand that he is making a will, the nature and extent of his property, how the property will be distributed, that the will devises his property as he desires, and who are the persons who are the natural persons to receive his property); see also Lehman v. Lindenmeyer, 109 P. 956 (Colo. 1910); Cunningham v. Stender, 255 P.2d 977 (Colo. 1953).
Additionally, pursuant to § 15-11-502, a testator must be an individual of eighteen years or more who is of “sound mind.” A testator must not be under the undue influence of another individual at the time he or she executed the will instrument, or suffer from an insane delusion or mental illness that materially impacts the testator’s ability to make dispositions under the will. See Breeden v. Stone, 992 P.2d 1167 (Colo. 2000) and Krueger v. Ary, 205 P.3d 1150 (Colo. 2009). Will contest actions questioning the testator’s legal capacity to execute a valid testamentary instrument as well as whether the testator was subject to any undue influence, insane delusion, or mental illness, are frequently litigated in the will and trust context and also fall within the three year statute of limitations period.
Another frequently litigated topic in the context of wills and trusts is an action for breach of fiduciary duties. The applicable statute of limitations period is found in § 13-80-101(1)(f), C.R.S. (2015), stating that all actions for breach of trust or breach of fiduciary duty must be commenced within three years after the cause of action accrues. Pursuant to § 13-80-108(6), a cause of action accrues “on the date the breach is discovered or should have been discovered by the exercise of reasonable diligence.” Clearly, this standard is somewhat vague and, as a result, issues frequently arise in determining exactly when the breach was or should have been discovered.
A very short limitations period applies when a trustee or a fiduciary has provided what is known as the “final accounting.” In this scenario, under § 15-16-307, C.R.S. (2015), any “claim against a trustee for breach of trust is barred as to any beneficiary who has received a final account or statement fully disclosing the matter and showing termination of the trust relationship between the trustee and the beneficiary unless a proceeding to assert the claim is commenced within six months after receipt of the final accounting or statement.” Emphasis added. This very short limitations period requires that the fiduciary provide to the beneficiaries an accounting that is “sufficient to put beneficiaries on notice as to all significant transactions affecting administration during the accounting period.” Colo. R. Probate P. 31.
Statute of limitations issues also arise in the context of equitable relief, which actions will be barred based on the applicable limitations period. An equitable remedy in the context of a will contest may include an action for constructive trust. For example, a constructive trust claim may arise in an undue influence action in which the rightful transferee of property from the decedent has been deprived of the property transferred because such property was transferred instead to an individual who unduly influenced the testator to devise the property to him or her instead. This equitable remedy may raise unique statute of limitations issues, however, and it is important to be aware of these issues. For example, in Eads v. Dearing, the court held that a constructive trust claim accrues at the time of discovery of the defendant’s breach of trust, not the initial transfer of property. 874 P.2d 474 (Colo. App. 1993).
Another tricky statute of limitations issue is the doctrine of laches, which may be raised as a defense in a will or trust litigation proceeding. Under the doctrine of laches, the time a claimant may raise a claim may be limited if he or she knew or was aware of the potential action and then unreasonably delayed pursuing the claim. Any practitioner should be particularly aware that the Colorado Supreme Court recently held in Hickerson v. Vessels, that the doctrine of laches may shorten the limitations period and defeat a lawsuit that was filed within the applicable statute of limitations. 316 P.3d 620 (Colo. 2014).
In the context of probate litigation, statutes of limitations can be both friend and foe depending on which side of the claim your client is on and whether relevant statutes of limitation deadlines have passed. As a result, it is always important to keep these deadlines in mind and to take action accordingly.
No Medical Evidence Required for Appointment of a Conservator
/in Administration of Estate, Conservator, Court Procedures, Fiduciary Litigation, Guardian, Legislationby Kelly Dickson Cooper
Imagine that you have just discovered that your father has received several unsolicited emails asking for money and that he has sent almost $500,000 to anonymous offshore bank accounts. Worried for your father, you decide to seek a conservatorship to protect his assets.
These are the facts that started the dispute resulting in a recent Colorado Court of Appeals case, In re Neher, 2015 COA 103 (July 30, 2015).
At the hearing, there was no medical evidence presented, but rather, expert testimony from a CPA. The Court ruled in favor of son and his father appealed. The father’s primary argument on appeal was that Colorado’s conservatorship statute requires medical evidence before a court can determine whether a conservator is necessary.
Colorado’s conservatorship statute provides that a petitioner must prove by clear and convincing evidence that the individual is unable to manage his property and business affairs because they cannot effectively receive and evaluate related information. In addition, a petitioner must prove, by a preponderance of the evidence, that the individual has assets that will be wasted or dissipated unless management is provided and that protection is necessary.
The Court of Appeals denied the father’s appeal and held that medical evidence is not required evidence in a proceeding requesting appointment of a conservator. The Court of Appeals considered the following in reaching the decision:
-The language of the statute does not expressly require expert testimony like other statutes in Colorado.
-The language of the statute does not require that a petitioner show the causes of the individual’s inability to effectively receive or evaluate information.
-The Court’s interpretation is consistent with other conservatorship statutes.
-To determine legislative intent, the Court compared the Colorado statute to the Uniform Probate Code and specifically identified that the Colorado statute did not contain the language “an impairment” like the Uniform Probate Code.
The Court of Appeals rejected the father’s arguments that the judicial department forms regarding the appointment of a conservator and the termination of a conservatorship contain references to a physician’s letter or professional evaluation. The Court of Appeals also rejected the father’s out of state case citations as unpersuasive.
Litigation in the area of conservatorships is continuing to grow and this case provides important guidance for the interpretation of the Colorado standard for the appointment of a conservator.
Equity: Alive and Well in Colorado
/in Administration of Estate, Administration of Trust, Court Proceduresby C. Jean Stewart
Historically, courts of law, presided over by judges, and courts of equity, presided over by chancellors, were separate in function and procedure. Law courts were governed by strict rules and rights while chancellors, the representatives of the king, were said to rule with discretion, utilizing concepts of fairness, morality and conscience.
In modern times, courts of law and equity have been merged and concepts of equity have receded as a myriad of statutes and regulations have replaced the application of “conscience” in the administration of justice. Early probate courts in America exercised equity jurisdiction. Probate judges continue to be conscious of the equitable legacy of the courts over which they preside. The Colorado Probate Code, adopted in Colorado in the 1970s, reminds judges sitting in probate that “Unless displaced by the particular provisions of this code, the principles of law and equity supplement its provisions.” C.R.S. §15-10-103.
Recently, the Colorado Supreme Court reaffirmed that the “probate court’s traditional powers in equity supplement and reinforce the statutory directives of the Colorado Probate Code.” Beren v. Beren, 349 P.3d 233 (Colo. 2015) . While the Supreme Court faulted the method used to calculate an equitable adjustment to a surviving spouse’s elective share, the Supreme Court approved the equitable award if calculated using alternative methods, including several suggested by the Court itself.
Undoubtedly there will continue to be resistance to the application of equity in probate proceedings—particularly from counsel or parties who are at risk of suffering detriment resulting from its application. It’s hard to imagine such efforts will be any more successful in light of the current status of Colorado law.
The Uniform Trust Code — A Time for Colorado
/in Administration of Trust, Legislation, Trusteeby Carol Warnick
The Uniform Trust Code (“UTC”) has now been adopted in 31 states. It is now the law in significantly more states than the Uniform Probate Code. The UTC is a uniform law drafted by the Uniform Law Commissioners, over a seven-year period. It is the first comprehensive uniform act dealing with trusts, although several states, notably California, Georgia, Indiana and Texas, all had comprehensive trust statutes at the time. These statutes, as well as any existing trust statutes in other states, were reviewed by the committee drafting the UTC. The stated goal of the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) when drafting the model act was to “provide States with precise, comprehensive, and easily accessible guidance on trust law questions.” The impetus behind the model trust act was the growing use of trusts throughout the country, which coupled with the sparse body of trust law in many states, created significant issues for lawyers and courts trying to deal with trust disputes.
I practice trust and estate law in three states, Colorado, Utah and Wyoming. Both Utah and Wyoming have adopted the UTC. I find that it is so much easier to deal with and solve trust disputes in both Utah and Wyoming because of the provisions of the UTC. One reason is that the law is set forth much more clearly and gives judges ready authority to back their decisions. In my experience, bringing a statute to the attention of the court carries more weight than finding a case that is close to “on-point” in the dispute, if finding such a case is even possible. Because the law is set forth more clearly, everyone going into a dispute knows what the law is. There is not a significant body of trust common law in any of the states I practice in, therefore the UTC brings significantly more uniformity to the decisions of the variety of judges who have to rule on trust issues.
In addition, there are innovative portions of the UTC that provide more options to trust beneficiaries and potential litigants when issues arise with respect to a given trust. One example of such innovation are non-judicial settlement agreements. The UTC specifically provides that parties may enter into binding non-judicial settlement agreements to resolve issues concerning trusts as long as the agreement doesn’t violate a material purpose of the trust and includes terms and conditions that could be properly approved by a court under the UTC or other applicable law. Examples of matters that can be approved by a non-judicial settlement agreement would be the interpretation or construction of terms of the trust, approval of a trustee’s report or accounting, direction to the trustee to refrain from performing a particular act or to grant the trustee a necessary or desirable power, resignation and appointment of a trustee and determination of trustee compensation, transferring the trust’s principal place of administration, and the liability of a trustee for an action relating to the trust. Any interested person can also seek court approval of the agreement, but in my experience working with non-judicial settlement agreements in Utah and Wyoming, no one has felt the need to obtain court approval after the negotiation of such an agreement. Such flexibility allows the interested persons with regard to a trust (defined as those whose consent would be required to achieve a binding settlement if it were to be approved by the court) to collaborate and work out a variety of issues that would otherwise require the additional time and expense of obtaining court approval for such actions. I have found this option to be invaluable in working out trust issues for clients, especially when the size of the trust does not justify significant court involvement, and often brings about settlement more readily.
Much to the chagrin of many estate planners, the UTC was defeated in Colorado over a decade ago but is again being studied by a committee at the Colorado Bar Association. Each state legislature has the ability to adjust the model act and modify it as seems appropriate to reflect local preferences, so there is hope that the model act can be adjusted in such a way that it can be passed next year. I want to lend my voice of support to the adoption of the UTC in Colorado as an act that would greatly facilitate the ability to solve trust disputes early, more readily, and with less expense.
Updates for fiduciaries from the IRS and Colorado
/in Administration Expenses, Administration of Estate, Administration of Trust, Legislation, Personal Representative, Trusteeby Kelly Cooper
The IRS has stated that it will not issue closing letters for federal estate tax returns filed on or after June 1, 2015, unless one is requested by the taxpayer. The information provided by the IRS states that the taxpayer should wait at least four months after filing the return to request a closing letter. A closing letter indicates that the estate’s federal estate tax liabilities have been paid. While a closing letter is not a formal closing agreement, many fiduciaries wish to have a closing letter from the IRS before making final distributions and closing estates. For returns filed prior to June 1, 2015, please refer to the following document for guidance as to when a closing letter will be issued:
Frequently Asked Questions on Estate Taxes
Certain statutes in the Colorado Probate Code are subject to cost of living adjustments each year. The numbers for 2010-2015 can viewed here:
Cost of Living Adjustment of Certain Dollar Amounts for Property of Estates in Probate