Fiduciary Law Blog Archive – Page 15

Your Fiduciary Duty of Loyalty

September 15, 2014/in Fiduciary Duties, Fiduciary Litigation, Trustee

by Elizabeth Meck

The Fiduciary Law Blog recently posted an article in which we observed that “fiduciary” is a vague term encompassing many different people and several different relationships. Under Colorado law, a fiduciary includes, without limitation, a trustee of any trust, a personal representative, guardian, conservator, receiver, partner, agent, or “any other person acting in a fiduciary capacity for any person, trust, or estate.” Colo. Rev. Stat. § 15-1-103(2).

Any fiduciary must abide by the duties and obligations generally known as “fiduciary duties,” which are among the highest duties under the law. This post is the first in a short series in which we will discuss the fiduciary duties applied to trustees, when it may be appropriate for a trustee to delegate certain duties, and a trustee’s potential liability for breaching these important duties.

In the context of a trust, and as stated in the Restatement (Second) of Trusts § 2, a fiduciary relationship with respect to property arises out of the manifestation of an intention to create the fiduciary relationship and subjects the trustee “to equitable duties to deal with the property for the benefit of another person.”

The trustee’s most basic function is to hold title to and manage trust property pursuant to the terms of the trust instrument, which he must do with the utmost loyalty, good faith and honesty. Generally, the fiduciary duties applicable to a trustee are: the duty of loyalty, the duty to exercise care and skill in managing the trust assets and administering the trust, and the duty to remain impartial to all beneficiaries. This post will focus on the duty of loyalty.

The duty of loyalty, perhaps the broadest of the fiduciary duties, has been described as “inherent” in the trust relationship. George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 543 (2d rev. ed. 1980). This duty requires the trustee to remain loyal to the beneficiaries of the trust in all aspects of trust administration. Restatement (Second) of Trusts § 170.¹ Fundamental to the duty of loyalty is the obligation to adhere to the terms of the trust instrument itself and to undertake all actions in accordance with applicable law. Restatement (Third) of Trusts § 76; Restatement (Second) of Trusts § 169.

As defined in Scott on Trusts, the trustee’s fiduciary duty of loyalty is the “duty of a trustee to administer the trust solely in the interest of the beneficiaries.” Austin W. Scott & William F. Fratcher, Scott on Trusts § 170 (4th ed. 1987) (emphasis added). A trustee, therefore, “is not permitted to place himself in a position where it would be for his own benefit to violate his duty to the beneficiaries.” Id. Under the duty of loyalty, the trustee must refrain from engaging in any act of self-dealing or conflicts of interests that may result in increased benefit to himself. Such transactions would constitute a breach of the trustee’s duty of loyalty, may expose the trustee to personal liability, and may be voided by the beneficiaries. See Restatement (Second) of Trusts § 170 cmt. b.

Further, the duty of loyalty requires the trustee to “communicate to [all beneficiaries] all material facts” in connection with the administration of the trust. Restatement (Second) of Trusts § 170. Failure to inform beneficiaries of important decisions or material facts may not only constitute a breach of the duty of loyalty, but frequently creates feelings of distrust toward the trustee. It is important, therefore, for the trustee to remain transparent, which we discussed in a prior blog post.

The duty of loyalty applies to the administration of a non-charitable trust as well as charitable trusts. This is the case even though a charitable trust may exist perpetually. A trustee of a charitable trust must administer the trust solely in the interests of effectuating the trust’s charitable purposes. See Restatement (Second) of Trusts § 379 cm. a.

As stated above, the duty of loyalty is broad and requires the trustee to regularly ensure that he is acting solely in the best interest of the beneficiaries. It is wise for any trustee to step back occasionally to make sure that his actions as trustee are taken in accordance with the duty of loyalty.

In the next blog entry in this series, we will discuss the duty of the trustee to exercise care and skill in the management of trust assets and administration of the trust.

¹For further discussion on the duty of loyalty, see Austin W. Scott & William F. Fratcher, Scott on Trusts §§ 169-186 (4th ed. 1987); and George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 543-543(V) (rev. 2d rev. ed. replacement vol. 1993).

Robin Williams Got It Right

September 3, 2014/in Administration Expenses, Administration of Estate, Administration of Trust, Court Procedures, Personal Representative, Trustee

by Kelly Cooper

The popular press is always full of cautionary tales about celebrities and their estate plans (see our previous post on Philip Seymour Hoffman). These stories make it seem that more celebrities get estate planning wrong then get it right. However, it appears that Robin Williams did take several steps to get his estate plan right before his untimely death.

Williams created a revocable living trust. Since trust documents are not part of the public record like a will, we may never know who Williams gave his assets to and how those assets will be handled (in a trust, outright gifts, etc.). The living trust will help protect Williams’ legacy and his family’s privacy (assuming there is no litigation or disclosure by those with knowledge of the plan).

In addition, living trusts help to avoid probate if they are properly funded. In California, where Williams lived, the probate process can be expensive due to fees for the attorney and executor that are based on the value of the assets going through probate in addition to appraisal fees and court costs. If Williams transferred all of his personal assets to the living trust prior to his death, he will have helped to avoid these expenses.

Williams also appears to have created a trust to hold his real estate in California (estimated equity of $25 million) and another trust to benefit his children (value unknown). While it is not known whether Williams created these trusts to help reduce his estate tax costs, it is possible that he did so. This uncertainty is because the terms of these trusts remain private.

I hope that Williams’ family benefits from his planning and foresight and that other celebrities take notice.

Enforcing Mediated Settlement Agreements

July 14, 2014/in Mediation

by Jean Stewart

Resolution of a family conflict by mediation in trust and estate litigation is satisfying for the mediator but often tiring and less satisfying for the parties in conflict. Inherent in the mediation process is some give and take on all sides. While mediators like to talk about “enlarging the pie” to the end that everyone gets all of their needs met, it is often the case that parties leave the mediation session with less than everything they hoped for or believed they would be awarded by the courts.

This requires that counsel for the litigants, not the mediator, insure that any settlement the parties reach is as enforceable as any contract. While most lawyers learned basic contract law in their first year of law school and confronted a basic contracts question on their admission exam, some lawyers forget basic contract law when drafting their settlement agreements following mediation. A valid, signed contract serves as the first defense to an effort to revoke a settlement agreement by a party who experiences remorse.

Colorado also offers the parties, pursuant to CRS 13-22-308, an opportunity to streamline the enforcement of mediated agreements as court orders. Yaekle v. Andrews, 195 P.3d 1101, 1108 (Colo. 2008). Getting signed settlement agreements approved and adopted as orders of the court is relatively simple in trust and estate litigation. Most attorneys use the Rule 8.8, Colorado Rules of Probate Procedure Non-Appearance Hearing process. Making the settlement contract an order of the court offers a variety of additional mechanisms not only to resist any effort to revoke the settlement itself but also to invoke the court’s inherent authority to enforce its own orders.

Mediation is hard work for the mediator, for the parties and for the lawyers involved. Everyone wants to avoid the consequences resulting from a party changing his or her mind. A successful mediation calls on the best lawyering skills to reduce the terms of the agreement to an enforceable contract. When appropriate, seeking court approval and making the settlement agreement an order of the court further reinforces the agreement and enhances the likelihood that its terms will be carried out.

Forgotten, But Not Lost

June 30, 2014/in Administration of Estate, Fiduciary Duties, Personal Representative

by Jody H. Hall, Paralegal

I have been working with a client whose mother passed away more than ten years ago. Due to the passage of time, mergers, corporate name changes and stock splits, and a variety of other circumstances, quite a bit of her property had been turned over to the State of Colorado as unclaimed property. However, contrary to what some may believe, all is not lost! These assets still belong to her, and in this case, to her legal heirs. The claims process is relatively easy and can even be initiated online – you just have to start the search!

The Great Colorado Payback (the “GCP”) is a division of the Colorado State Treasurer. They are charged with “reuniting Coloradoans with their lost or forgotten assets” – what an amazing job description! The GCP regularly receives proceeds of bank accounts, stock certificates and dividends, oil and gas royalty payments, utility refund payments, the contents of safe deposit boxes and more from “holders” (financial institutions or other entities in possession of these assets) that have lost contact with the rightful owner. The current list maintained by the Colorado State Treasurer contains more than 1.7 million names!

Our firm routinely recommends that our newly-appointed personal representatives check the state’s website for any unclaimed (sometimes referred to as abandoned) property for recently deceased individuals. A GCP representative recently educated me about the dormancy period, which is 5 years from the last customer-initiated contact. Holders typically do not turn over the accounts to the GCP until the expiration of this dormancy period. Going forward, I will begin to check the GCP list again immediately prior to closing an estate in order to ensure that no assets belonging to the decedent, but not discovered by the personal representative (for example, statements may not be sent to the owner, and therefore received by the PR, if the holder had an old address), have been reported during the pendency of the estate (or trust) administration.

In addition to the Unclaimed Property List, the GCP office maintains an Estate of Deceased Owners and Dissolved Corporations List. Pursuant to escheat law, it is not until twenty-one years after an estate is probated or a corporation dissolved, and their funds are turned over to the State Treasury that those funds become property of the State and are deposited into the Public Education Fund. So even for a probate estate where there are no known heirs at the time of the estate administration, there is still time for the rightful heirs, should any be located, to receive their inheritance. Please note that the proper claim procedure in this instance involves obtaining an order of distribution from the probate court.

For more information or to check to see if a client (deceased or alive), or even YOU, have forgotten assets on the list, go to www.colorado.gov/treasury/gcp/. For links to other states, check out www.MissingMoney.com or www.unclaimed.org.

Be sure to consult the FAQ’s and instructions on the website to include all of the required information for your claim, particularly with assets of deceased individuals. Now that you have found the lost assets, you do not want missing paperwork to delay your receipt even longer.

Happy searching!

Colorado’s New Uniform Premarital and Marital Agreements Act

June 16, 2014/in Legislation

by Megan Meyers

As of July 1, 2014, a new marital agreement statute with a primary legislative goal of providing greater protection to unrepresented parties will become effective. The new statute, entitled the Uniform Premarital and Marital Agreements Act, Colo. Rev. Stat. §§14-2-301 et seq. (“Colorado’s New Act”) is Colorado’s adapted version of the Uniform Premarital and Marital Agreement Act.

Enforceability Requirements

The following are the most significant requirements under Colorado’s New Act:

In writing. A premarital or marital agreement must be in writing and signed by both parties.
Voluntary consent. Parties must voluntarily consent to the terms of the agreement and not be under duress.
Access to Counsel. Under Colo. Rev. Stat. §§14-2-309 of Colorado’s New Act, a premarital or marital agreement will be unenforceable if a party to the agreement did not have meaningful access to independent legal representation. Before signing the agreement, an unrepresented party must have had time to (i) decide whether to retain counsel to provide independent legal advice and (ii) locate counsel, obtain counsel’s advice and consider the advice provided. If only one party is represented by counsel, the unrepresented party must either have the financial resources to engage counsel or the other party must agree to pay the reasonable fees for the unrepresented party to have independent legal representation. Note, the practical effect of this new requirement will mean that the presentation and execution of an agreement under an expedited time frame will not be possible – particularly if one party is unrepresented. Therefore, although independent representation by counsel for both parties is not specifically required under Colorado’s New Act, best practices still recommend this approach. If either party is unrepresented by counsel, Colo. Rev. Stat. §14-2-309(1)(c) and (3) of Colorado’s New Act requires specific language which must be prominently included in the agreement. Failure to include the language will invalidate the agreement.
Financial Disclosure. Adequate financial disclosure must be made which includes disclosure of income. Specifically, a party must receive a reasonably accurate description and good-faith estimate of the value of the property, liabilities and income of the other party or have an adequate knowledge or a reasonable basis for having adequate knowledge of such property, liabilities and income.
Waivers of Maintenance and Attorney Fees. Colo. Rev. Stat. §14-2-309(5) of Colorado’s New Act includes limitations on the ability of parties to prospectively determine, modify, limit or waive maintenance and the payment of attorney’s fees in the event of divorce. While such terms may be included in an agreement, determinations as to whether such modifications or waivers are unconscionable will be determined by the court as a matter of law at the time enforcement is sought.
Waiver of Marital Rights at Death. Of additional note, beginning July 1, 2014, a unilateral waiver of a marital right or obligation on the death of a spouse is unenforceable unless the waiver is made in a premarital or marital agreement consistent with Colorado’s New Act.

Unenforceable Terms

Colorado’s New Act also specifically delineates unenforceable terms in a premarital or marital agreement. Examples of unenforceable terms include, but are not limited to, terms that (i) adversely affect a child’s right to support, (ii) limit remedies available to victims of domestic violence or (iii) penalize a party for initiating a legal proceeding for legal separation or divorce.

Applicability to Prior Agreements

Colorado’s New Act does not affect premarital or marital agreements executed prior to July 1, 2014 and such agreements will continue to be enforceable subject to the laws in place at the time of execution. However, amendments from and after July 1, 2014 to previously executed premarital or marital agreements must comply with Colorado’s New Act. Consistent with existing law, Colorado’s New Act is also applicable to parties to a civil union.

Conclusion

The use of premarital and marital agreements continues to grow for all types of couples as these agreements can be as broad or as narrow as desired by the parties. For younger couples, such agreements can be the best way to ensure that current and future interests in gifts, inheritances and interests in trusts are protected and remain separate. For couples who are marrying later in life or with children from a prior relationship, agreements with a broader scope can ensure that previously created wealth is protected for children, grandchildren and charitable endeavors. Colorado’s New Act enables couples to contract prior to or during their marriage or civil union regarding their property rights in the event of the death of either party or in the event of a legal dissolution of the relationship. In addition to the statutory requirements, practitioners should follow three basic best practice points for a valid premarital or marital agreement: (i) allow sufficient time to review, consider and negotiate the agreement: (ii) provide financial disclosure including all assets, liabilities and income sources; and (iii) obtain independent counsel for each party.

Colorado’s New Law on Mandatory Reporting of Elder Abuse Goes into Effect July 1, 2014

May 5, 2014/in Legislation

by Elizabeth Meck

Colorado’s new mandatory reporting of elder abuse law will require certain helping professionals to report any suspected or observed abuse or exploitation of an elderly individual to law enforcement within 24 hours. The bill was signed into law on May 16, 2013 and takes effect on July 1, 2014. The bill, as a result of an elder abuse task force established to develop the legislation, makes Colorado the 48th state to have mandatory reporting legislation on the books.

Under prior law, certain professionals were encouraged to make reports of any suspected or known abuse of an at-risk adult, defined as a vulnerable individual due to mental or physical disability or aged 60 years or older. The new law incorporates several modifications and additions to the existing law. Specifically, it adds the definition of an at-risk elder as an individual over the age of 70 and increases the age of an at-risk adult to 70 years or older. Colo. Rev. Stat. §§ 18-6.5-102(2)-(3). It also clarifies the definitions of crimes against at-risk adults or elders to include undue influence resulting in conversion and caretaker neglect. Colo. Rev. Stat. §§ 18-6.5-103(6), (7.5). Further, the new law sets forth the reporting and response requirements, mandating that not only must the initial report be filed within 24 hours of the suspected abuse, but also that the law enforcement agency must provide notice of the report to the appropriate county agency within 24 hours of the report. Colo. Rev. Stat. § 18-6.5-108(2)(b).

The exhaustive list of helping professionals mandated to report under the new law includes a wide variety of professions such as health care professionals, pharmacists, psychologists and mental health care providers, social workers, long-term care providers, clergy members, law enforcement officials and personnel, court-appointed guardians and conservators, and certain financial professionals. See Colo. Rev. Stat. § 18-6.5-108(1)(b)(I)-(XVIII). An individual who fails to report under the statute or one who knowingly files a false report commits a Class 3 misdemeanor. Colo. Rev. Stat. §§ 18-6.5-108(1)(c), (4). Upon filing a good faith report, a reporting individual is immune from any related civil action, unless he or she is the alleged perpetrator of the abuse or exploitation. Colo. Rev. Stat. § 18-6.5-108(c)(3).

In order to raise awareness among the public and the reporting professionals, the Colorado Department of Human Services was required to implement an awareness program by January 1, 2014. Colo. Rev. Stat. § 26-1-105. Further, to prepare law enforcement officers to recognize and respond to incidents of elder abuse and exploitation, the Department of Law’s Peace Officer Standards Training board (“P.O.S.T.”) was required to implement training standards and programs by January 1, 2014; and, as of January 1, 2015, local law enforcement agencies will be required to employ at least one peace officer who has completed the training. Colo. Rev. Stat. § 24-31-313. No later than December 31, 2016, the Colorado Department of Human Services shall prepare a comprehensive report to assess implementation of the new law. Colo. Rev. Stat. § 26-3.1-110.

While attorneys are not on the list of professionals mandated to report, they will certainly come into contact with individuals who meet the definition of at-risk elders as well as professionals required to report. This should cause us all to be increasingly alert and mindful of the provisions set forth in the new law.

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