Fiduciary Law Blog Archive – Page 15

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.

Happy New Year!

January 1, 2016/in Uncategorized

Now There Are Tax Transcripts In Lieu of Estate Tax Closing Letters

December 14, 2015/in Administration Expenses, Administration of Estate, Fiduciary Duties, Personal Representative, Trustee

by 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?

November 23, 2015/in Fiduciary Litigation

by 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

October 13, 2015/in Administration of Estate, Conservator, Court Procedures, Fiduciary Litigation, Guardian, Legislation

by 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.

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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.