2007 Trust and Estate Case Law Update
Michelle R. Mieras
Law Office of Patricia Lester Clowdus, P.C.
650 So. Cherry St., Suite 850
Denver, CO 80246
COLORADO SUPREME COURT CASES
The Denver Foundation v. Wells Fargo Bank, N.A., 163 P.3d 1116 (Colo. 2007), reh’g denied.
Court of Appeals Opinion: The Denver Foundation v. Wells Fargo Bank, N.A., 140 P.3d 78 (Colo. App. 2005).
Originating court: Denver Probate Court
In this trust construction action, settlors funded charitable trusts (collectively referred to as the “trust”) upon their deaths for the uses and purposes of The Denver Foundation (the “Foundation”). The trust corpus was to be held in trust by the United Bank of Denver. The trust incorporated by reference the Foundation’s Declaration of Trust and future amendments thereto. At the time the trust was drafted, the Foundation could not directly hold or manage endowment funds, necessitating the services of trustee banks to hold the funds for the Foundation’s uses. The Foundation later established a nonprofit corporation that could hold and invest trust principal as the Foundation’s permanent endowment. Later still, the Foundation adopted an Amended and Restated Declaration of Trust including broad powers and mandating that trustee banks transfer net income and principal to the Foundation’s nonprofit corporation as the Board of Trustees directs and entitling the Foundation alone to construe the provisions of its Declaration.
Around the same time, the Foundation completed a review of the management of its endowment funds, concluding that the charitable needs of its community beneficiaries would be better served with centralized management. This led the Foundation to request trustee banks to transfer trust principal to the Foundation to be held by its nonprofit corporation as part of its endowment. Wells Fargo, successor trustee to United Bank of Denver, refused the Foundation’s request to transfer trust assets as it pertained to the settlors’ trust. The Denver Probate Court found on summary judgment that the Foundation had the power to compel the requested transfers, but the Court of Appeals reversed.
The Colorado Supreme Court agreed with the probate court, finding that settlors intended to establish a perpetual gift and permanent endowment for the Foundation’s uses and purposes subject to the terms of the trust and the Foundation’s Amended and Restated Declaration of Trust, which must be read together. The Court held that the trust agreement’s prohibition against invasion of principal did not prevent the transfer of the trust corpus to the Foundation’s nonprofit corporation, especially in light of the Foundation’s exclusive ability to construe its Declaration and the Settlors’ intent to make a permanent and perpetual gift for the Foundation’s benefit rather than to create a charitable trust for the bank’s management.
The Court further rejected Wells Fargo’s argument that the requested transfer would extinguish the trust by a merger of legal and beneficial interests in the Foundation, noting that two preferred income beneficiaries named in the trust held enforceable rights, as did the general public to the extent the general public was an indefinite beneficiary with enforceable rights, precluding the application of the doctrine of merger. Finally, the Court reiterated that settled Colorado law prohibits the admission of extrinsic documentation for use in the interpretation of an unambiguous document, such as the trust agreement at issue.
Marital Agreements: Review of Attorneys’ Fees Provisions for Unconscionability
In re Marriage of Ikeler, 161 P.3d 663 (Colo. 2007).
Court of Appeals: In re Marriage of Ikeler, 148 P.3d 347 (Colo. App. 2006).
Originating court: City and County of Denver District Court
The Colorado Supreme Court held that an agreed-upon provision of a marital agreement allocating the burden of attorneys’ fees is subject to review for unconscionability. Spouses executed a marital agreement which included a provision requiring each party to pay his or her own attorneys’ fees in the event of a dissolution or separation. Despite this provision, wife sought recovery of her attorneys’ fees against husband, citing the court’s ability to review a marital agreement for unconscionability at the time of enforcement under the Colorado Marital Agreement Act (“CMAA”). Husband argued that while C.R.S. § 14-2-307(2) allowed the court to review a waiver of maintenance under the unconscionability standard, no such statutory basis existed for a similar review of a waiver of attorneys’ fees.
The Colorado Supreme Court agreed with wife, finding that a waiver of attorneys’ fees in a marital agreement is subject to review for unconscionability at the time of dissolution. The Court’s conclusion resulted from a conflict between C.R.S. § 14-2-307(2) and the CMAA’s provisions regarding the contents of marital agreements. Because the CMAA failed to specifically address waivers of attorneys’ fees in marital agreements, the CMAA’s catch-all provision allowing parties to contract to any matter not in violation of public policy or any statute imposing a criminal penalty would apply. Under this provision, if a waiver of attorneys’ fees violated public policy, it would not be a valid contract term to be enforced by a court. Thus, the Court reasoned, if C.R.S. § 14-2-307(2) limited the review of marital agreement provisions for unconscionability to only maintenance provisions, it would conflict with the prohibition in C.R.S. § 14-2-304(1)(i) against contract terms that violate public policy.
Turning to sections 14-10-101 to -133, C.R.S., of the Uniform Dissolution of Marriage Act, the Court noted that the same public policy considerations (protection of spouses and children from the potential economic harm of dissolution proceedings) affect both and award of attorneys’ fees and an award of maintenance, and refused to construe the CMAA’s silence on reviewability of attorneys’ fees as an intentional abrogation of the common law public policy protections afforded to attorneys’ fees. The Court concluded that a waiver of attorneys’ fees in a marital agreement may be reviewed for unconscionability at the time of the dissolution and, if the provision is found to be unconscionable, would not be binding on the court under C.R.S. § 14-2-304(1)(i) as against public policy. The Court cautioned that the scope of its holding extended only to waivers of attorney’s fees in marital agreements “and should only be read as such.”
Breach of Fiduciary Duty: Aiding and Abetting by Attorney
Alexander v. Anstine, 152 P.3d 497 (Colo. 2007).
Court of Appeals: Anstine v. Alexander, 128 P.3d 249 (Colo. App. 2005).
Originating court: City and County of Denver District Court
Although the Colorado Supreme Court granted certiorari on the issue of whether a lawyer can be liable for aiding and abetting a client's breach of fiduciary duty to a non-client, the Court’s conclusion that the plaintiff lacked standing to bring its claim under the Federal Bankruptcy Code against the corporate debtor’s president in the first place, thus depriving the plaintiff of standing to sue the corporate debtor’s attorneys for aiding and abetting a breach of fiduciary duty, the court stated, “We save for another day the question of whether an attorney can ever be liable for aiding and abetting a breach of fiduciary duty to a non-client.”
Probate Jurisdiction in Adoption Cases
In re J.C.T.,___ P.3d ___, 2007 WL 4225820 (Colo. 2007).
Court of Appeals: In re J.C.T., 155 P.3d 456 (Colo. App. 2006).
Originating Court: Denver Probate Court
Following the appointment and removal of a series of guardians for J.C.T., a minor child, the probate court declared J.C.T. a ward of the court and ordered the child to stay with the court-appointed guardian ad litem (“GAL”), to whom the court referred as the “guardian designee”, pending a decision on a permanent guardianship for J.C.T. In the course of proceedings, the court had instructed the GAL to locate a permanent successor guardian for the child, and the GAL worked with adoption agencies hoping to find a suitable family to serve as permanent successor guardian and to possibly adopt J.C.T. The Colorado Court of Appeals reversed the probate court’s order, finding that the probate court had engaged in de facto adoption proceedings over which it lacked jurisdiction by ordering the GAL to find a permanent guardian and to consider the potential for eventual adoption in evaluating the child’s best interests. The Court of Appeals also found the probate court’s appointment of itself as guardian and the GAL as guardian designee improper, because it could have caused J.C.T. to be a neglected or dependent child subject to the exclusive jurisdiction of the juvenile court.
The Colorado Supreme Court disagreed on both grounds. The Court first rejected the idea that the probate court had engaged in de facto adoption proceedings, noting that the probate court’s consideration of the child’s best interests properly included consideration of permanency and stability for the child. The Court also stated that statutorily, a child’s availability for adoption requires parent or guardian consent, an affidavit or sworn testimony to the court that the child was abandoned for one year or longer, or a court order terminating the parent-child relationship. As none of these had occurred, J.C.T. was unavailable for adoption.
The Court then turned to the propriety of the probate court’s appointment of itself as guardian and the GAL as guardian designee. Referring to and applying the Court of Appeals’ analysis in In re Estate of Morgan, 160 P.3d 356 (Colo. App. 2007) (summarized below), the Court concluded that an individual eligible to serve as guardian as defined in the Colorado Probate Code includes a government entity such as the probate court. The Court then determined that the language of C.R.S. § 15-14-102(4) defined “guardian” to include a limited, emergency, and temporary substitute guardian, but not a guardian ad litem, simply distinguished the role of a guardian from the role of a guardian ad litem and did not preclude the appointment of the GAL as guardian designee. Although acknowledging that circumstances may occur in which a GAL and a guardian have a conflict of interest, the Court held that no inherent conflict exists between the two roles. Finally, the Court found that the probate court maintained jurisdiction after its self-appointment, as the law did not require the probate court to transfer jurisdiction to the juvenile court and instead simply permitted the probate court to request recommendations of the juvenile court pertaining to the guardianship.
COLORADO COURT OF APPEALS CASES
Involuntary Appointment of Government Agency as Guardian
In re Estate of Morgan, 160 P.3d 356 (Colo. App. 2007).
Originating court: El Paso County District Court
Morgan, an adult resident of El Paso County, had previously been in the legal custody of the El Paso County Department of Services (DHS) as the subject child in a dependency and neglect matter. The guardian ad litem in that matter petitioned the court for appointment of a guardian for Morgan, after which an emergency guardian was appointed. The emergency guardian was later appointed as Morgan’s permanent guardian. A few months later, the guardian no longer wished to serve, but the court deemed it necessary to appoint a permanent guardian due to Morgan’s inability to make appropriate decisions regarding her personal safety and finances. After determining that no other person existed with priority or a desire to serve as Morgan’s guardian, the court appointed DHS as Morgan’s permanent guardian over Morgan’s objection. DHS appealed its appointment, stating that it had not accepted the appointment. After reviewing and construing Colorado’s guardianship statutes, the Court of Appeals concluded that while the statutory guardianship structure would permit the appointment of a government entity such as DHS as guardian, it does not provide the power to force an entity to accept the appointment. Noting that the Montana Supreme Court reached a different conclusion in a similar case, In re Co-Guardianship of D.A., 100 P.3d 650 (Mont. 2004), and recognizing that having a public agency serve as guardian may be the last resort for people like Morgan “before they fall through the cracks of our society,” the Court of Appeals reversed the order appointing DHS as guardian.
Child Support by Guardian
Marriage of Rodrick, ___ P.3d ___, 2007 WL 1839803 (Colo. App. 2007); reh’g denied.
Originating court: Adams County District Court
In this dissolution of marriage action, husband attempted to evade child support obligations by arguing that he, as the guardian of a minor child, was not required by Colorado law to use his own resources for the ward’s expenses. The Court of Appeals disagreed, finding the relationship with the minor child to be custodial rather than a guardian-ward relationship. Husband and wife had taken the child in when he was one day old. At that time, the biological parents had executed a power of attorney delegating parental authority to husband and wife. The power of attorney expired, and husband and wife subsequently brought an action seeking parental responsibility of the child. The district court granted their request and entered a parental responsibility order. The Court of Appeals acknowledged that C.R.S. § 15-14-105 (the power of attorney statute) was part of the legislative scheme establishing procedures related to guardianships for minors and incapacitated persons, but noted that husband and wife admitted that the power of attorney executed under this section lapsed nine months after it was signed and prior to the time they commenced their action to establish a legal basis to continue to care for the minor. Furthermore, the court found that the parental responsibility order resulting from the action was not a guardianship order creating a ward-guardian relationship, but instead established husband and wife as willing legal custodians of the minor. The court held that husband and wife therefore owed support duties to the minor as custodians, rather than as guardians, despite their attempts to characterize themselves in the dissolution papers as the minor’s legal guardians.
In re Estate of Evarts, 166 P.3d 161 (Colo. App. 2007); cert. denied, 2007 WL 2296812 (Colo. 2007).
Originating court: Mesa County District Court
Decedent’s former guardian petitioned for his own appointment as personal representative of the decedent’s estate and for probate of the decedent’s estate through intestacy. He attached a copy of the decedent’s will from twenty years prior to the petition. The copy of the will showed that the will had not been properly witnessed and that the notary seal was illegible. Because petitioner had no knowledge of the location or existence of the original will, he asked the court to find that the decedent had died intestate and to determine the heirs. Petitioner gave notice of the hearing on his requests to the decedent’s siblings and to two nieces of the decedent, Olson and Hill, who would be the sole devisees under the old will. Upon learning that notice of the hearing was given to Olson at an outdated address, he attempted to notice her again by mail but this time transposed numbers in her new address.
The hearing proceeded as scheduled and the court entered its order formally appointing petitioner as personal representative, finding that the decedent left no will and determining that the decedent’s siblings were his intestate heirs. Seventeen months later, both nieces sought to vacate the order of intestacy on the grounds that Olson did not receive notice of the hearing. The trial court found that Olson was not an interested person entitled to notice and that the nieces’ petition to vacate the order was time barred and equitable tolling of the statute of limitations did not apply. The Court of Appeals reversed for further proceedings to determine whether Olson had been actually served with notice. Acknowledging that the definition of “interested person” can shift throughout a proceeding, the Court of Appeals found that Olson, as devisee under the old will, was an interested person in the intestacy matter. Colorado law requires a court to hear a challenge to an intestacy order brought by an interested person entitled to notice but to whom proper notice of hearing was not given. While such a challenge must generally be commenced within twelve months of the order at issue, the court determined that equitable tolling would apply here to Olson (because the parties assumed for purposes of this appeal that Olson did not actually receive notice), but not to Hill, who did receive notice. The court concluded by stating that if, on further proceedings, the trial court determines that Olson did receive actual notice of the hearing despite the address issues, then her petition to vacate the intestacy order would be time-barred, but if the court determines that Olson did not actually receive notice, equitable tolling would apply and permit her to attempt to prove the validity of the decedent’s purported will and overcome the presumption of revocation.
Liability Under Financial Power of Attorney/Constructive Trust
Bryant v. Community Choice Credit Union, 160 P.3d 266 (Colo. App. 2007), cert. denied, 2007 WL 1310306 (Colo. 2007).
Originating court: Adams County District Court
An elderly woman and her agent under a general power of attorney opened an account at a credit union into which the woman placed the proceeds from the sale of her home. The credit union received the power of attorney at the time the account was opened, and erroneously listed the account as a multiple party account held by the woman and her agent rather than as an individual account in the elderly woman’s name. Almost immediately, the agent commenced a series of withdrawals, purchases and personal loans from the credit union secured by certificates of deposit bought with account assets. The agent, of course, defaulted on the obligations, and the credit union claimed the account assets. A court then appointed a conservator for the elderly woman, and the conservator sued the credit union asserting claims of forgery and theft, accepting a forged instrument, ultra vires acts, negligence and negligence per se, conversion, breach of duty of good faith, money had and received, resulting and constructive trust, statutory liability, and punitive damages. Following the elderly woman’s death, the trial court granted the credit union’s motion for summary judgment on all claims except two: negligence/negligence per se and punitive damages. At trial, the court entered a directed verdict in favor of the credit union on both claims.
The Court of Appeals affirmed in part, reversed in part and remanded the matter for further proceedings. First, the court reversed the trial court’s grant of a directed verdict on the negligence and punitive damages claims. The court found that plaintiff presented sufficient evidence that account assets were subject to a resulting trust, that the agent’s transfer of assets to others violated his fiduciary duties, and that the assets so transferred were subject to a constructive trust. Furthermore, the court found that the plaintiff presented sufficient evidence upon which a jury could conclude that the credit union breached its duty to exercise care in its handling of the account, where plaintiff’s expert opined that the credit union’s actions fell below the standard of care for Colorado financial institutions and were therefore negligent. The trial court further erred in concluding that C.R.S. §§ 15-15-221 and -222 negated any common law duty of the credit union, because C.R.S. § 15-15-202 limits the applicability of these statutes where the relationship is established by means other than the account terms (such as by a power of attorney, as was the case here). The court further concluded that even if C.R.S. §§ 15-15-221 and -222 applied, the plaintiff would not be prevented from recovering account funds from the credit union under available theories of liability, such as resulting and constructive trusts. Second, the court reversed the trial court’s summary dismissal of the conversion claim, finding that plaintiff was entitled to bring the claim where the credit union seized funds held by the agent in trust for the principal. Finally, the Court of Appeals upheld the trial court’s dismissal of all other claims, noting in particular that constructive trust is a remedy rather than a stand-alone claim.
Fiduciary Duty Under Power of Attorney
People v. Madison, ___ P.3d ___, 2007 WL 1288456 (Colo. App. 2007), reh’g denied.
Originating court: El Paso County District Court
While this case originated in the criminal context, this decision has important ramifications to the trust and estate practitioner considering duties arising under a power of attorney. The defendant and his father lived together in the father’s home. Neighbors became concerned after not seeing the father for some time, and officers responded to the home to perform a welfare check. The officers found the father dehydrated, anemic and malnourished, lying in bed in his own waste, covered with multiple bed sores and dead tissue. He had been in this condition long enough for his clothing to become enmeshed in his skin. The trial court convicted the defendant for serious bodily injury to an at-risk adult by criminal negligence and other assorted drug crimes.
The defendant appealed his conviction, and the government cross-appealed the defendant’s acquittal on second degree assault against an at-risk adult with an associated crime of violence sentence enhancer. Of interest to trust and estate practitioners, the Court of Appeals focused on the creation of a duty on the defendant’s part to his father via a statutory power of attorney in the form provided in C.R.S. § 15-1-1302(1), signed by the father and defendant. The court concluded that the defendant’s actual exercise of authority under the POA (which occurred when the defendant presented the POA to creditors, took care of his father and his property and represented to friends and neighbors that caring for his father was his sole responsibility and occupation) created a legal duty on the defendant’s part to exercise his powers with due care for his father’s care and benefit. This duty, in turn, constituted a duty imposed by law sufficient to serve as grounds for charges of second degree assault and causing serious bodily injury to an at-risk adult by criminal negligence. In so finding, the court declined to follow Texas case law taking a more strict approach and holding that such a duty could only be created by statute.
Waiver of Medicaid Claim; Apportionment of Estate Assets
In re Estate of Ligon, 160 P.3d 361 (Colo. App. 2007), cert. denied, Pratt v. Pratt, 2007 WL 1666622 (Colo. 2007) and cert. denied, 128 S.Ct. 651 (2007).
Originating court: El Paso County District Court
Following the decedent’s death, the Colorado Department of Health Care Policy and Financing (CDHCPF) filed a claim against the decedent’s estate to recoup payments made by Colorado’s Medicaid program for the decedent’s medical costs. The amount of the claim exceeded the value of the estate. The decedent’s four children were equal beneficiaries of the decedent’s estate. One of the children applied to the CDHCPF for a waiver of recovery to the extent of her interest in the estate, based on her assertion that without the waiver she would be forced to apply for public assistance. The CDHCPF approved the request, resulting in the waiver of one-quarter of the claim amount (the pro rata share of the claim which would go to that child). Instead of paying this amount to the child for whom CDHCPF granted the waiver, the personal representative (another of the decedent’s children and beneficiaries), paid attorneys fees and expenses and distributed the remaining funds equally among the four beneficiaries.
The child who had obtained the waiver objected. After a hearing, the court held that although that child was the only one entitled to a waiver, the equal distribution of the estate among the four beneficiaries was proper. The Court of Appeals disagreed, concluding that such a distribution violated the public policy of waiving estate recovery for heirs that may become a burden on the state if denied estate proceeds and gave an unfair preference to the other beneficiaries. Thus, the entire net amount should have been distributed to the child who obtained the waiver. The Court of Appeals did not address how the distribution to that child might be increased depending on the sequence of the application of the waiver and the payment of estate fees, as the issue was not raised on appeal.
Smith v. Multi-Financial Securities Corp., 171 P.3d 1267 (Colo. App. 2007).
Originating Court: Arapahoe County District Court
Trust beneficiaries sued an investment company with which the trustee had set up an account, basing the investment company’s liability on the trustee’s status as a representative and employee of the investment company. The trustee had completed an account agreement and an account information update form for the trust’s account, each of which contained mandatory arbitration provisions for disputes arising from or relating to the account. Both were signed by the trustee in his capacity as trustee and in his capacity as a representative of the company. The beneficiaries alleged that the investments were inappropriate for the trust’s and beneficiaries’ needs and further complained that the trustee made improper cash distributions to himself. The beneficiaries did not allege noncompliance with the actual account agreement or account information update form. The investment company moved to stay the proceedings and compel arbitration based on language in the account documents, but the trial court denied the motion.
The investment company appealed. Finding that the arbitration clauses contained in the account documents applied to the beneficiaries’ action, the Court of Appeals reversed the trial court’s order and remanded the case with instructions to grant the motion to stay and compel arbitration. The decision stemmed from the beneficiaries’ attempt to hold the investment company liable on the theory of respondeat superior, which in turn arose from the trustee’s execution of the account documents as trustee and as the investment company’s representative. The Court concluded that the beneficiaries’ claims related to the account and further concluded that the beneficiaries were estopped from avoiding the arbitration provisions in the account documents because the beneficiaries’ claims against the investment company were grounded in the company’s duties allegedly arising from the signatures on the same account documents.
Following a September 2006 audit titled, “Oversight of Probate Cases - Colorado Judicial Branch Performance Audit,” Chief Justice Mary Mullarkey established the Protective Proceedings Task Force. With a eye toward updating and revising the system for ease of use, the Task Force promulgated several form changes in 2007. During 2008, if a practitioner does not use an available JDF form, the court may request that the filing be supplemented with any additional or different information that would have been provided had the JDF form been used. The use of JDF forms becomes mandatory on January 1, 2009 in all types of cases. Current JDF forms are available online at http://www.courts.state.co.us/chs/court/forms/probate/probate.htm.
As of January 6, 2007, the following JDF forms had been approved and made available for use:
JDF 52 Special Power of Attorney Pursuant to §§15-14-105, C.R.S.
JDF 797 A Petition Has Been Filed to Appoint a Guardian, Conservator, or Both For You. You Have Certain Rights
JDF 798 What it Means for you When a Request for Appointment of a Conservator has been Filed - Information Sheet
JDF 799 What it Means for you When a Request for Appointment of a Guardian has been Filed - Information Sheet
JDF 823 Instructions for Appointment of a Guardian - Minor
JDF 825 Verified Consent of Parent (Replaces CPC 34-CP)
JDF 826 Verified Consent or Nomination of Minor (Replaces CPC 34-NC)
JDF 835 Verified Petition for Termination of Guardianship - Minor
JDF 836 Order for Termination of Guardianship - Minor
JDF 840 Instructions for Appointment of a Guardian - Adult
JDF 844 Notice of Appointment of Emergency Guardian (Replaces CPC 2-ERA)
JDF 852 Petition for Termination of Guardianship – Adult
JDF 853 Verified Notice of Death
JDF 854 Order for Termination of Guardianship - Adult
JDF 855 Petition for Modification of Guardianship
JDF 856 Order for Modification of Guardianship
JDF 866 Order for Deposit of Funds to Restricted Account (Replaces CPC 55)
JDF 867 Acknowledgment of Deposit of Funds to Restricted Account
JDF 868 Motion to Withdraw Funds from Restricted Account
JDF 869 Order to Withdraw Funds from Restricted Account
JDF 870 Restricted Log
JDF 891 Foreign Conservator’s Sworn Statement (Replaces CPC 60-C)
JDF 892 Certificate of Ancillary Filing – Conservatorship (Replaces CPC 61-C)
JDF 912 Renunciation and/or Nomination of Personal Representative (Replaces CPC 17-A)
JDF 929 Domiciliary Foreign Personal Representative Sworn Statement (Replaces CPC 60)
JDF 930 Certificate of Ancillary Filing – Decedent’s Estate (Replaces CPC 61)
JDF 940 Information of Appointment (Replaces CPC 42)
JDF 951 Application for Informal Appointment of Successor Personal Representative
JDF 952 Informal Appointment of Successor Personal Representative