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Using a Power of Appointment to Enable the Decedent’s Intent To Be Upheld (even if it might violate public policy)
/in Will & Trust Constructionby Carol Warnick
Individuals have a right to give their property to whomever they see fit. However there are certain limitations that the law over time has imposed, typically based upon a public policy theory. One of those is safeguarding the institution of marriage. But isn’t testamentary freedom also a public policy? One interesting case where these two public policies clashed, but a power of appointment allowed the decedent’s intent to be upheld, was In Re Estate of Feinberg, 919 N.E. 2nd 888 (Ill. 2009). Max Feinberg was an Illinois dentist who was very tied to his Jewish heritage and wanted it preserved in his family. His trust contained a beneficiary restriction clause which read as follows::
Max’s plan was to give 50% of his estate to his grandchildren in lifetime trusts, but to disinherit any of them who did not marry in the Jewish faith (or whose spouse did not convert to the Jewish faith.) When Max died, none of the grandchildren were married. Would this condition have been void as against public policy because it was a condition subsequent and attempted to restrain marriage? I think that is a distinct possibility. However, the Illinois Supreme Court did not have to address that issue because Max’s wife, Erla, altered his plan in a significant way by exercising a power of appointment give to her by Max in his document. By the time Erla died, four of the five grandchildren had married outside of the Jewish faith. Only one grandson qualified under the beneficiary restriction clause. Erla’s exercise of the power of appointment provided that upon her death, instead of a lifetime trust, $250,000 was to be given to each of her grandchildren who at the time of her death had complied with Max’s beneficiary restriction clause. If a grandchild had not complied, their share was given to their parent instead.
When one of the grandchildren sued, both the trial court and the appellate court held the beneficiary restriction clause was invalid as against public policy and held that the grandchildren who had married outside of the Jewish faith would still receive their interests. The Illinois Supreme Court reversed. The Court stated that it didn’t have to deal with the issue of whether or not Max’s beneficiary restriction clause was a condition subsequent and was trying to control what the children did or didn’t do in the future. The Court only had to deal with Erla’s exercise of the power of appointment which was based upon the marital status of the grandchildren at her death —- either they qualified or they didn’t qualify.
In the last paragraph of the opinion the Court stated, “It is impossible to determine whether Erla’s distribution plan was the product of her own wisdom, good legal advice, or mere fortuity.” The Court went on to hold that “because no grandchild had a vested interest in the trust assets and because the distribution plan adopted by Erla has no prospective application, we hold that the beneficiary restriction clause does not violate public policy.” In essence, Erla’s exercise of the power of appointment in the way she did allowed the beneficiary restriction clause to be upheld.
Tax Certainty for Civil Unions in Colorado
/in Conservator, Fiduciary Duties, Fiduciary Litigation, Legislationby Kelly Cooper
Couples in a civil union that are permitted to file federal income tax returns jointly can now file their Colorado income tax returns jointly as well.
Governor Hickenlooper signed the bill into law last Thursday (February 27, 2014). It requires couples in a civil union to file their Colorado taxes using the same filing status used on their federal tax return. The intent of the legislation is to align Colorado with updated federal tax law that permits joint filing for married same sex couples.
The new law will apply to tax years beginning on January 1, 2013 and any other income tax years that are still open under Section 39-21-107 or 39-21-108, C.R.S.
2014 Cost of Living Adjustment of Certain Dollar Amounts Under Colorado Probate Code
/in Administration of Estate, Legislation, Personal Representativeby Peter J. O'Brien
At the beginning of every year, the Colorado Department of Revenue publishes a list of cost of living adjustments for certain dollar amounts under the Colorado Probate Code. It is important for probate practitioners to be aware of the change in figures related to the intestate share of a decedent's surviving spouse, supplemental elective-share, exempt property, lump sum exempt family allowance and collection of personal property by affidavit.
The 2014 figures are as follows:
Statute
Description
2014 Amount
C.R.S. § 15-11-102(2)
Intestate share of decedent's surviving spouse if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent
$320,000, plus fractional share pursuant to statute
C.R.S. § 15-11-102(3)
Intestate share of decedent's surviving spouse if all of the decedent’s surviving descendants are also descendants of the surviving spouse and the surviving spouse has one or more surviving descendants who are not descendants of the decedent
$240,000, plus fractional share pursuant to statute
C.R.S. § 15-11-102(4)
Intestate share of decedent's surviving spouse if one or more of the decedent’s surviving descendants are not descendants of the surviving spouse
$160,000, plus fractional share pursuant to statute
C.R.S. § 15-11-201
Supplemental elective-share amount
$53,000
C.R.S. § 15-11-403
Exempt property
$32,000
C.R.S. § 15-11-405
Lump sum exempt family allowance
$32,000
C.R.S. § 15-12-1201
Collection of personal property by affidavit
$64,000
Letters of Wishes: Helpful or Hurtful?
/in Administration of Estate, Administration of Trust, Court Procedures, Fiduciary Discretion, Fiduciary Duties, Fiduciary Litigation, Removal of Fiduciary, Surcharge of Fiduciary, Testamentary Intent, Trustee, Will & Trust Constructionby Kelly Cooper and Desta Asfaw
Most of the trusts we see instruct the trustee to consider making distributions for “health, education, maintenance and support.” While the typical HEMS standard provides certainty in regard to taxes, it does not provide the trustee with any insight into what types of distributions the settlor wanted the beneficiaries to receive from the trust. In addition, many trusts give the trustee broad discretion in regard to distributions (through the use of the words, “sole” or “absolute”), which puts even more pressure on the trustee to figure out if the settlor would have agreed to make distributions. Typically, a trustee has little to no guidance from the settlor about his or her desires for the beneficiaries or his or her purposes in creating the trust (other than tax deferral or avoidance).
One solution to this problem is for the settlor of the trust to send to the trustee a non-binding letter of wishes. Letters of wishes include personal information about the settlor and the beneficiaries, their relationships, the beneficiaries’ abilities and limitations and the settlor’s specific concerns or desires regarding each beneficiary. Letters of wishes give the trustee more insight into the state of mind of the settlor when exercising discretion, which is helpful when exercising discretion in regard to distributions.
While letters of wishes are generally recognized in the estate planning community, there is very little law regarding the effect of a letter of wishes on a trustee’s discretion, whether reliance on a letter of wishes provides any liability protection to a trustee or if a letter of wishes must be disclosed to the beneficiaries. If a settlor provides opinions and concerns about the beneficiaries in a letter of wishes that may be hurtful to the beneficiaries, the trustee will then be faced with the difficult decision – do you provide a copy of the letter of wishes to the beneficiaries? If a claim for breach of the trustee’s fiduciary duty should arise, it may be that the trustee is left with no choice but to make the letter available to the beneficiaries. In Colorado, there is no case law regarding letters of wishes so it is unknown if the letters of wishes must be disclosed to beneficiaries under C.R.S. § 15-16-303 or whether a trustee can rely on a letter of wishes when making a distribution decision.
Even with the uncertainty relating to the disclosure and use of letters of wishes, any peek into the settlor’s mind and his or her intent regarding distributions will be helpful to a trustee. If a letter of wishes is admitted into evidence during a dispute, the letter could also prove to be compelling evidence for a judge reviewing a trustee’s exercise of discretion.
Can an LLC Survive the Death of the Sole Member?
/in Administration of Estate, Fiduciary Discretion, Fiduciary Duties, Personal Representativeby Carol Warnick
What happens when the sole member of an LLC dies without making provisions for succession? Does the LLC automatically dissolve with the assets being forced to be distributed through the decedent’s estate? Alternatively, is there some way for the personal representative to save the LLC and to assume the position of the sole owner during the administration of the estate, thus allowing time to figure out how to handle the ultimate distribution of the LLC? When the decedent operates a viable business in a single member LLC, significant value can be lost to the estate if the LLC is dissolved upon the death of the sole member.
Those of us in Colorado are fortunate enough to be operating under a statute that give us some flexibility. Under Colorado law, if the operating agreement of the single-member LLC does not address the circumstances on the dissociation of the member the statute provides as follows:
There is no dissolution provided that the assignee appoints or becomes a member:
If 90 days have elapsed since the sole member’s death, the LLC dissolves, but it may be resurrected pursuant to 7-90-1001 and 1002 (note that the assignee has the power to act on behalf of the dissolved LLC (7-80-803.3(2)). (“The legal representative, assignee, or transferee of the last remaining member may wind up the limited liability company's business if the limited liability company dissolves.”) It could also wind up by merging with a non-dissolved LLC which may continue the business of the dissolved LLC.
This means that if we have an estate where the sole member of an LLC which is operating a business dies with no provision for succession, the statute not only provides a way to keep the LLC (and thus the business) alive until the ultimate distribution of the LLC interests, but it even allows for reinstatement of a dissolved entity should the personal representative not act quickly enough. This is a great advantage for personal representatives dealing with this particular situation in Colorado. A growing number of other states are specifically addressing the dissociation of the last member, similar to Colorado, but almost no other states permit the reinstatement of a dissolved entity in this manner.
(The author gives thanks to Robert Keatinge, her colleague here at Holland & Hart, for his insight and significant contributions not only to the LLC statutes in Colorado but for his assistance with the content of this blog.)
What Do Probate Judges Do?
/in Court Proceduresby C. Jean Stewart
Since I last posted an article on this blog, I was elected president of the National College of Probate Judges at its fall conference in Nashville, Tennessee. The College is the only national organization focusing exclusively on probate matters. Its mission, to support, educate and provide resources to state and local judges who handle probate matters contributes to the efficient administration of justice in the probate courts in the United States. Because I feel strongly about the role probate judges have historically played and continue to play in the fabric of the American court system, I embark on this role with both enthusiasm and resolve.
While the term “probate” historically referred only to the limited process of proving a testamentary document to be the decedent’s last will, probate has come to refer to a group of case types that include not only the administration of decedent’s estates, but also trust administration (a growing area), appointment of guardians and conservators (in some states the terms used are: guardian of the person and guardian of the property), disposition of last remains, declarations of death, civil mental health commitments and treatment of the mentally ill or addicted, and in some jurisdictions, the adoption of children.
Some or all of the probate judges in 15 states are elected or selected to serve only in probate jurisdiction; in another 33 states judges of general jurisdiction have jurisdiction over probate cases, along with their civil and criminal dockets. In 3 states, such as Colorado, there is a hybrid system where one or more localities have specialized judges while other areas rely on general jurisdiction judges for probate decisions.
Probate judges hear complex trials (including jury trials) arising from fiercely-contested cases, many of which are sensationalized and reported in the local or national press, such as the claim brought by Ryan O’Neal in the Farrah Fawcett estate litigation that was decided yesterday by a California jury. Probate judges also hear many uncontested proceedings focused on the deteriorating physical and mental condition of injured, ill, and incapacitated citizens who rely on the courts to protect their rights while insuring that they receive appropriate care and support under the supervision of the probate court.
The National College of Probate Judges plays an important role in assisting probate judges address these challenging and often emotionally-charged cases with educational seminars, publication of resources and materials (such as the National Probate Court Standards) and providing opportunities for collegial interactions with colleagues. I look forward to working with judges around the United States during this coming year to assist with their important mission.