|The Colorado Lawyer|
Vol. 42, No. 7 [Page 35]
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In and Around the Bar
2013 Legislative Session
Highlights of the 2013 Legislative Session
by Michael Valdez
About the Author
Michael A. Valdez is the CBA Director of Legislative Relations—(303) 824-5309, email@example.com. Readers may contact Michael any time they would like more information about bills or other legislative matters that relate to or affect the legal profession and the practice of law.
Another legislative session has come and gone. The Colorado Bar Association (CBA) was active in a number of bills in this 2013 legislative session. This article provides information on notable legislation the CBA addressed in the session that concluded on May 8, 2013. A more comprehensive review of legislation from the 2013 legislative session will appear in the August issue of The Colorado Lawyer. The "Legislative Update" will feature summaries of legislation that affect the legal profession by area of practice.
The general election in November 2012 brought a major change to the political landscape at the Capitol; then again, what general election doesn’t bring about change? The big change at the Capitol in 2013 was the control shift in the House from the Republicans to the Democrats. The shift was anything but subtle—from a 33–32 majority in the previous two legislative sessions, the House Republicans moved to the minority with the majority switching to the Democrats where the Democrats now enjoy a 37–28 majority. Meanwhile, in the Senate, the election kept the majority in the hands in the Democrats. They enjoyed the same margin as in the two previous sessions—20–15. Term limits continue to have an impact on the complexion of the two houses: there were thirty-three new legislators elected to the House and Senate. In an effort to groom new legislators for leadership roles, fresh faces are pressed into leadership roles in their first and second terms at the Capitol.
After getting through some tough economic times, the recovery of the Colorado economy outpaced the nation’s recovery over the last year. Strong revenue projections from the fall and into the start of the legislative session changed the conversation around the state budget. In the previous two legislative sessions, balancing the budget with declining revenues was the dominant concern on the minds of all 100 legislators. With greater resources to work with for the 2013 legislative session, the Joint Budget Committee (JBC) was able to restore some of the funding for cuts that were required in recent years.
State Budget Highlights
> Protecting Colorado’s most vulnerable populations
$13.5 million for essential services for persons with developmental disabilities and $4.0 million to assist elderly Coloradans with meals and transportation
> Enhancements to mental health system
$7.5 million for mental health community placements, a jail-based restore-to-competency program, and more resources for school-based mental health services, and $19.8 million to create a statewide mental health crisis system
> Protecting Colorado’s children from abuse and neglect
Increase of $13.3 million for child welfare system
> Support for K-12 and higher education
Increase to the School Finance Act (K-12) by $210.2 million; increase of $31.0 million to support the College Opportunity Fund stipends; increase of $5.3 million in financial aid for students
> Promoting economic development
$2.9 million for new job creation incentives for companies relocating to Colorado or for Colorado companies expanding their workforce; $1 million to incentivize film, television, and media production activities; $2 million to support tourism
> Investing in critical infrastructure
$188.1 million for capital construction projects
> Planning for the future
The state’s General Fund Reserves were increased by 5%.
The Judicial Branch submitted several budget priorities to the CBA Joint Budget Committee (JBC) when the session began. When all was said and done, each priority was approved by the JBC and ultimately by the entire legislature.
> Procedural fairness and leadership education initiative
Provides training and technical assistance on procedural fairness to judges, district administrators, chief probation officers, and senior staff in the Office of the State Court Administrator ($517,000)
> Self-represented litigant coordinators
Funds added to expand statewide network of services to assist self-represented parties in court
> Court appointed professionals coordinator
Adds a staff person who will be dedicated to administering the Respondent Parents’ Counsel Program ($78,695)
> Problem-solving court coordinators
Funds to expand existing family dependency treatment courts and veteran treatment courts ($750,952)
> Implementation of evidence-based practices
Funds for the Probation Department to support the implementation of several evidence-based/promising programs and practices ($255,236)
> Additional Legal Staff
Staff added to meet increased demand for legal services related to contracts, grants, forms, and policies ($151,339)
> Courthouse capital and infrastructure maintenance
Funding to support infrastructure and courthouse furnishing needs ($3,848,500).
Legal Services for Victims of Domestic Violence
In the current fiscal year, which ends on June 30, 2013, $628,430 has been appropriated for legal services funding for victims of domestic violence. This line item is the appropriation for the Family Violence Justice Fund in the Judicial Branch budget. With strong support from the Access to Justice Commission, the JBC increased (and the legislature agreed) the line item in the budget by $541,570, making a total appropriation of $1,170,000 ($1 million in general funds and $170,000 in cash funds). This marks the first time ever the appropriation has exceeded $1 million!
2013 CBA-Sponsored Legislation
This section features a discussion of CBA-sponsored bills from the 2013 legislative session. The term "sponsorship" means that proposed legislation has undergone extensive study and review by the sections and committees of the CBA. The term also assumes that, with regard to solicitation of legislators to carry the bill, scheduling of witnesses, and lobbying to ensure its passage, ultimate responsibility for the legislation rests with the CBA.
S.B. 13-77—Concerning Certain Provisions of the Colorado Probate Code
Sponsored by Sen. Ellen Roberts and Rep. Dan Pabon
The 2013 Probate Code omnibus bill is the product of two years of revisions developed by the CBA Trust and Estate and Elder Law Sections. At the request of our prime sponsor, the Probate Code took one year off from revisions, so the 2013 bill was more robust in terms of the number of sections (eighteen) than omnibus bills from previous years. Here are the 2013 changes:
13-90-102. Testimony concerning oral statements made by person incapable of testifying—when allowed—definitions. The proposed changes to the Dead Man’s Statute clarify several issues and address concerns voiced by the judiciary and practitioners since the statute’s 2002 enactment.
15-10-603(3)(j). Factors in determining the reasonableness of compensation and costs. The proposed change adds the words "special skills" to the factors listed in CRS § 15-10-603(3)(j) to assure that such skills will be factors in determining the reasonableness of fees under the new compensation statute, and to assure conformity with the fiduciary duty to employ special skills found at CRS § 15-16-302.
15-12-703. General duties—relation and liability to persons interested in estate—duty to search for a designated beneficiary agreement—standing to sue. The addition of subsections (6), (7), and (8) clarify a personal representative’s standing in probate litigation to determine the decedent’s intent and to defend or prosecute that intent as appropriate.
15-12-705. Duty of personal representative—information to heirs and devisees. The majority of the revisions to CRS § 15-12-705 are technical corrections to make the statute consistent with the provisions of CRPP 8.4 The one provision that was added to the statute that is not in the rule is paragraph 1(n). Paragraph 1(n) adds the requirement that the information that a personal representative provides to heirs and devisees after appointment shall include a statement that persons with knowledge of an unrevoked Designated Beneficiary Agreement should provide written notice of that to the personal representative.
15-12-805. Child support claims in decedent’s estates. This proposal would revise the claims priority statute, to give a higher statutory priority to payment of child support claims in decedents’ estates. Currently, child support owed by a decedent at the time of his/her death, and any future child support obligations, are "general" claims against a decedent’s estate and, thus, are lumped together with all other general claims that don’t have priority under § 805. For practical purposes, this proposal would allow child support claimants a better opportunity to collect the full amount of the obligation.
15-12-1201(1). Collection of personal property by affidavit. The Trust and Estate Section recently has been made aware that lawyers for most of the credit unions in Colorado are interpreting the current statute as not applying to funds held by banks and credit unions. The Uniform Probate Code Comments and Notes state specifically that this statute is intended to apply to all personal property, including all funds on deposit. The amendment will clarify that the statute applies to all personal property of a decedent, including funds on deposit in a bank or credit union.
15-14-406.5. Professional evaluation. The proposed changes to CRS § 15-14-406 and the addition of a new CRS § 15-14-407 bring Colorado’s conservatorship statute dealing with professional evaluations of respondents into harmony with Colorado’s guardianship statute on the same subject (§ 15-14-306). Currently, there is a difference between the two, with the conservatorship statute—§ 15-14-406—being less certain and less protective of the respondent’s right to seek an evaluation.
15-14-429. Presentation and allowance of claims. The change to CRS § 15-14-429 provides flexibility to the courts and protected persons when the assets of a conservatorship estate are close to being exhausted. In those limited circumstances, a conservator would be able to ask the court to withhold or defer payment to creditors in favor of addressing the basic living and health needs of the protected person.
15-16-502. Reimbursement for taxes. The purpose of the proposed language is to improve and clarify planning with intentionally defective grantor trusts (IDGTs) in Colorado. IDGTs are used in many estate plans to achieve estate and gift tax savings. An IDGT is taxable to the grantor for income tax purposes, but gifts to an IDGT by the grantor are complete for gift tax purposes and thus are not included in the grantor’s taxable estate. Sometimes, the grantor of an IDGT wants to be reimbursed out of the trust for paying taxes on trust income. Most practitioners have not included a power to reimburse the grantor in IDGTs due to the concern that such a power will cause the trust to be reachable by the grantor’s creditors and therefore includible in the grantor’s estate. As a result, many IDGTs currently do not give the trustee this authority. The proposed language is in response to Rev. Ruling 2004-64 in which the Internal Revenue Service clarified this issue by holding that an IDGT’s grantor is not treated as making a gift to the trust by payment of the income tax liability generated by the trust, and that a trustee’s discretionary authority to reimburse the grantor for payment of these taxes does not cause estate tax inclusion.
15-16-601. Life insurance policy owned by a trustee. The ownership of a life insurance policy by an Irrevocable Life Insurance Trust (ILIT) is an estate planning technique to provide a tax-exempt source for payment of federal estate taxes or debts of the insured at death. The policies used to fund these trusts are normally selected by the insured, and the trustee of the ILIT has little or no control over the quality of the insurance product. After the formation of the ILIT, the policy may encounter problems and possibly lapse because the premiums being paid will not sustain the death benefit originally illustrated or because of the financial rating of the insurance company. The trust beneficiaries may seek damages from the trustee even though the trustee may have had no control over the selection of the policy or the ability to pay the premiums. Because of the potential liability, many corporate fiduciaries are unwilling to accept being the trustee. This results in individual family members becoming trustees who typically are unsuited to manage a sophisticated arrangement such as an ILIT. This statute is intended to encourage corporate fiduciaries to assume the role of trustee by eliminating liability for circumstances typically beyond their control.
15-16-701 et seq. Revocable trusts. Colorado law on trusts is primarily based on common law. However, many of our cases reflect the law of trusts as it existed decades ago. The Trust and Estate Section’s push to adopt more modern trust law met with well-reasoned resistance. However, even that resistance element (about which we consulted before presenting these statutes) has agreed to or indicated that it does not object to the enactment of these provisions on revocable trusts.
15-10-201. Amend definitions. These changes result from the Business Law Section wanting clarification that business trusts should be excluded from the definition of trust under the Colorado Probate Code. The business lawyers were concerned that business trusts might be considered revocable unless they expressly stated that they are irrevocable. That would affect many older contracts. Business trusts operate in the legal environment of business and investment where contract law generally applies. Contracts are binding and irrevocable unless the parties otherwise agree. The changes will make it clear that business trusts are irrevocable unless otherwise stated.
15-17-101. Time taking effect—provisions for transition. After many years of adopting Uniform Probate Code Amendments with separate effective date provisions for Colorado, the Trust and Estate Section decided that the interplay of so many different effective dates was confusing the determination of which statute applied and when. The proposed changes adopt the Uniform effective date provisions. One Colorado clarification was added to make it clear that the laws of intestacy in effect on the date of the decedent’s death control.
15-17-102. Effective date—applicability for reenactment of article 11—REPEALED. This section became unnecessary due to amendments contained in CRS § 15-17-101.
The act is effective on August 7, 2013, unless an initiative petition is filed to put the issue on the November 2014 ballot.
H.B. 13-1138—Concerning Public Benefit Corporations
Sponsored by Rep. Pete Lee and Sen. John Kefalas
This act creates a new class of Colorado companies called Public Benefit Corporations (PBCs), which pursue a public benefit purpose in addition to seeking profits. Historically, there have been two types of Colorado corporations: for-profit business corporations, which pursue profit maximization for the benefit of its shareholders, and nonprofit corporations, which pursue charitable, religious, and other social and public goals. In a business corporation, a director who puts social or public benefit purposes ahead of profit maximization may be violating his or her duty to the shareholders. This legislation provides flexibility to business corporations to pursue public benefit purposes (described forth in the PBC’s articles of incorporation (publicly available at the Secretary of State’s website), even at the cost of reducing profits.
As originally introduced, H.B. 13-1138 provided for the authorization of benefit corporations by amendment to the Colorado Business Corporation Act. The current bill is a significant amendment to the bill as originally introduced and reflects a breakthrough compromise between the sponsors and their associates and the BLab Company (Pennsylvania nonprofit corporation or PNC), the Alliance for a Sustainable Colorado, and a number of Colorado businesses that opposed HB 13-1138 in the House and who had originally proposed much different benefit corporation legislation in 2011 and 2012.
> A business corporation can become a "public benefit corporation" either on formation or with the consent of two thirds of its shareholders. Shareholders who do not consent to the designation will have dissenters’ rights.
> The act includes detailed notification requirements to ensure that those who become shareholders of a PBC are aware of the nature of the corporation—that is, that it also will pursue public benefits rather than pure profit maximization. As a result, shareholders and investors will be able to make an informed decision about whether they wish to invest in such a corporation.
> When a PBC is formed, the shareholders decide the nature of the public benefit to be sought. The term "public benefit" means "one or more positive effects or reduction of negative effects on one or more categories of persons, entities, communities, or interests other than shareholders in their capacities as shareholders, including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technical nature."
> In their decision making, corporate directors are required to balance: (1) the pecuniary interests of the shareholders, (2) the interests of those materially affected by the corporation’s conduct, and (3) the public benefits identified in the articles of incorporation. The second clause reflects the principal difference between the obligations of a for-profit corporation that may attempt to adopt a public benefit purpose as compared to a PBC. The directors of the PBC must balance the interests of those materially affected by the PNC’s conduct, including employees, customers, suppliers, their operating communities, and even their competitors. Directors are protected from breach of fiduciary duty claims when they do so.
> Shareholders may bring an action against a PBC or its directors for failing to pursue the public benefit, but members of the public may not do so.
> PBCs must publish reports that address how the PBC pursued its public benefit purpose and what issues hindered the PBC from pursuing its public benefit purpose. The report also must set forth an assessment of the overall social and environmental performance of the PBC against a third-party standard, although the assessment can be a self-assessment and does not need to be audited or certified by any third party. The process and rationale include selecting or changing any third-party standard against which the PBC’s performance is assessed.
The compromise on the bill is based on a legislation being considered in Delaware, which has been endorsed by the BLab Company. Unlike the Delaware proposal, which requires 90% approval to become a PBC, the Colorado act elected to continue the two-thirds requirement from the original bill. In addition, the act contains the reporting requirements from the original bill (as amended in the House Business Labor, Economic, and Workforce Development Committee) rather than the biennial reporting requirements of the Delaware proposal.
A goal of this act is to attract social entrepreneurs and socially responsible "impact" investors to Colorado. It offers a flexible approach empowering shareholders to decide what type of general or specific benefits to pursue, in lieu of profit maximization, and how they want to govern their entity.
Parts of the Act are effective on April 1, 2014, and the remainder of the act is effective on August 7, 2013, unless an initiative petition is filed to put the issue on the November 2014 ballot.
HB 13-1284—Concerning documents that can be filed regarding security Interests under the "Uniform Commercial Code"
Sponsored by Rep. Bob Gardner and Sen. Ellen Roberts
This bill represents technical clarifications to amendments to legislation that was adopted in the 2012 legislative session (HB 12-1262—Concerning enactment of amendments to the secured transactions provisions of the "Uniform Commercial Code," sponsored by Rep. Gardner and Sen. Roberts). Article 9 of the Uniform Commercial Code (UCC) regulates the creation of security interests. Revisions adopted in HB 12-1262 specify that the form of the debtor’s name that should be entered when filing a financing statement is the name that appears on the debtor’s driver’s license. The technical clarifications contained in the bill specify that if the debtor does not have a driver’s license, the form of the debtor’s name to enter on a financing statement is the name that appears on the debtor’s state-issued identification card.
In the 2002 amendments to UCC Article 9, Colorado adopted non-uniform provisions that regulate who can file an information statement about a security interest and the effect of such a filing. H.B. 12-1262 rendered these provisions obsolete, but they were not repealed in that bill. HB 13-1284 repeals these provisions.
The act is effective on July 1, 2013. This effective date coincides with that of HB 12-1262.
HB 13-1307—Concerning the effect of the inclusion of a legal description on the validity of documents affecting title to real property
Sponsored by Rep. Dan Kagan and Sen. Lucia Guzman
The Real Estate Section collaborated with several key stakeholders from the world of real property recordings to develop legislation that clarifies the legislature’s intent regarding the filing of a deed of trust where a legal description is missing from the filing of the documents. The need for the clarification came about as the result of a 2012 Colorado Supreme Court decision.
Sender v. Cygan (In re Rivera)
In its June 4, 2012 decision in this case, the Colorado Supreme Court distinguished those cases where a faulty legal description was included in a recorded document from those cases where no legal description was included and held (among other things) that:
"a recorded deed of trust that completely omits a legal description is defectively recorded"
"a deed of trust that is recorded without any legal description . . . is void and therefore incapable of providing constructive notice of the encumbrance"
"because the deed of trust . . . was defectively recorded, we cannot conclude that it triggered any duty to inquire"
"Viewed as a whole, section 38-35-122 reflects that a valid deed of trust necessarily must contain a legal description."
This legislation attempts to address the following issues that may have been created by the Sender v. Cygan decision:
Colorado statutes provide that any document with proper margins will be recorded when submitted to a county clerk and recorder. Therefore, there is no such thing as the concept of a "defective," "void," or "invalid" recording—all words used in Sender v. Cygan.
In legal terms, a defective, void or invalid recording is incapable of being fixed because, technically, such document does not exist in the public records. On the other hand, a flawed document could possibly be fixed by a recorded amendment thereto, thereby allowing the parties to confirm their original intentions (if all agree or if a court decides it is proper based on the facts of each case), rather than creating a new rule of law stating that the flawed document is of no legal consequences, as though it had not been prepared, executed, or recorded in the first place.
Colorado statutes require clerks and recorders to index real property recordings using grantor/grantee indexes. These indexes are the only legal/official way to search and determine real property titles in Colorado. Colorado statutes do not require (and never have required) clerks and recorders to maintain tract indexes. (A tract index is a type of index keyed to the particular legal description of a particular piece of real property and enables identification of the entire chain of title thereto by examining the index in which the particular piece of property is identified, rather than going from grantor to grantee throughout the entire chain of title.) This difference is fundamental to the issue being addressed by this legislation as follows:
If a person with a unique name (Mr. Troy Unique) owns only one parcel of real property located in Arapahoe County and a deed of trust from Troy Unique to the Arapahoe County Public Trustee is recorded by the Arapahoe County Clerk and Recorder without a legal description, a street address, or any other property identifying information, then:
(a) prior to the Sender v. Cygan decision and pursuant to Colorado statutes and common law, a title examiner locating such deed of trust in the grantor index of Arapahoe County may well be on notice that the deed of trust was intended to encumber Troy Unique’s sole property in Arapahoe County (and a Colorado Court could uphold that position based on the facts of the case) without having to refer to any legal description, address, or any other property identifying information whatsoever in the recorded document; or
(b) pursuant to Sender v. Cygan, that document is unquestionably invalid, void, and defectively recorded, leaving no ability for a court to determine whether or not a reasonable person would have made further inquiry based on this information, and leaving the parties and the courts with no option other than treating the document as if it had never existed.
This legislation clarifies that a failure to include a legal description on a document:
does not necessarily render that document defective, invalid, or void on its recording
is not necessarily determinative of whether that document, on recording, would operate to require a reasonable person to make further inquiry on examination thereof, thereby making that document valid against third parties acquiring an interest in such property (this issue would continue to be left to the courts to determine on a case by case basis per existing precedent)
will not, on execution, necessarily determine the validity of such document between the parties to such document.
This legislation preserves the law that existed before Sender v. Cygan in that a failure to include a legal description in a document affecting title to real property will not automatically void that document. Instead, each party to such document, and/or other affected third parties obtaining an interest in the property purportedly affected by such document, will retain their respective ability to ask a court to determine the effectiveness of such document and otherwise enforce such document based on the facts of each case. The act is effective on August 7, 2013, unless an initiative petition is filed to put the issue on the November 2014 ballot.
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