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How do I remove a trustee or invalidate a trust?

Removing a trustee or invalidating a trust is not easy to do. In fact, it could take sometimes years to resolve. However, there are reasons: the person who executed the trust did not have the capacity to sign it; or, the trustee was mismanaging the assets. In those cases, you may have grounds to do something about it. (Also, consider the appointment of a conservator and/or guardian if the acting trustee is losing capacity to act.)

This exact scenario is happening with the deceased Denver Bronco’s owner Pat Bowlen’s trust and his estate. His trust owns the Denver Broncos, and the heirs are his children. Two of his daughters do not like how the trust is being handled. Currently, the trustee is the team’s president, Joe Ellis. The daughters also do not believe their father had the capacity to execute the trust when he signed it. Therefore, they filed to remove the acting trustee and have attempted to invalidate the trust. However, those actions come with consequences.

Beth Wallace and Amie Klemmer filed a lawsuit Friday in Arapaho County Court challenging the validity of the trust, which includes a no-contest clause, on the grounds that their father lacked the mental capacity and was under undue influence when he signed his estate planning documents in March 2009…

…By choosing to challenge the validity of the trust in court, Wallace and Klemmer are putting themselves at risk of being disinherited if they’re found in violation of the no-contest clause and the 2009 trust is upheld in court. Their rights as beneficiaries would bypass them and go to their children.

https://gazette.com/sports/broncos/daughters-dispute-pat-bowlen-s-trust-risking-disinheritance/article_7f931d48-d657-11e9-b575-8fa17abe3e2c.html

How would someone start this process?

First, look at the trust document. It should include a section on how to remove the trustee. Sometimes, the trust states the majority of the beneficiaries can vote out a trustee. However, more often it requires the a court filing to remove the trustee with cause. That means you need a compelling reason and the judge has to agree. Always be careful before filing anything: The trust may include language regarding the consequences if you do file something against the trustee without any supporting evidence. This is called the no-contest or an in terrorem clause. They can be enforced if you do not have a basis for your claims. If they are enforced and you lose, you might have just lost your inheritance. The Colorado Supreme Court reversed such a decision from the trial court, but it took an appellate review to fix that error. Sandstead-Corona v. Sandstead, 415 P.3d 310, 2018 CO 26 (Colo. 2018).

Second, review the statute. The Uniform Trust Code codifies the procedure for a petition, which is set out in C.R.S. § 15-5-101 through 15-5-1404. Also, check the statute of limitations on your claims. You must file your claim within these deadlines. Some of these are codified in the Trust Code; some of them are codified in C.R.S. § 13-80-101 through 13-80-119. The new Trust Code allows the trustee to shorten the window, but he or she must do it properly.

Third, include supporting documentation with your claims. While not these are not required, medical information is important when invalidating a trust. A doctor’s statement of incapacity is helpful. If you are trying to remove a trustee, you should have financial or other documentation showing the trustee mismanaged the trust.

If you invalidate the trust, what happens?

Without knowing all the facts and the trust itself, it is possible all the assets in the trust will revert back into the individual’s name who created the trust. If there is a Will, it will control the disposition of assets. If there is no Will, you might create another nightmare.

If you are considering these claims or preparing to defend against such claims and need assistance, please call the Grand Junction Estate Attorneys Reams & Reams at 970-242-7847

Estate Taxes? “Rolling in the Deep”

Administering an estate or trust? Were taxes filed before the person died? How would you know? The IRS allows access to previously filed returns with authority. An unpaid income tax bill is common. Hopefully, there is a recorded lien to alert you. But some go unnoticed. This problem occurs at every income scale. As a recent example, review the Estate of Aretha Franklin.

Ms. Franklin died August 16, 2018 from pancreatic cancer. She was a prolific singer and songwriter. She was inducted into the Rock and Rock Hall of Fame. Her estate may be worth over $80 million (which might trigger “estate tax” problems). But she neglected to pay her income taxes for years.

The IRS filed an additional Proof of Claim for more than $1.5 million for tax years dating back as far as 2010 for 945 taxes and related penalties.


Irs Seeks To Recover Millions In Unpaid Taxes From The Estate Of Aretha Franklin
Kelly Erb – https://www.forbes.com/sites/kellyphillipserb/2018/12/28/irs-seeks-to-recover-millions-in-unpaid-taxes-from-the-estate-of-aretha-franklin/#5e5003715f9c

Ms. Franklin forgot or neglected to file. Now, it is the executor’s problem. The IRS is a creditor of the estate. Any unpaid tax will be a liability. It is the fiduciary’s job to negotiate or satisfy these claims.

Some people confuse “estate tax” with income tax in an estate. The federal “estate tax” might affect the estate if the combined assets of the decedent or trust are over $11.18 million (2018). See IRS’s reference to the Estate Tax. Aretha Franklin will have that problem, but the majority of Americans should never worry about it.

However, if the estate generates income above a certain amount, such as capital gains or dividends, the fiduciary will have to file an estate return for that income. See IRS’s reference to the Income Tax Return for Estates and Trusts. Of course, these are general considerations. The are exceptions to these rules. There are also pitfalls and penalties if you do not file on time. Do not be a link in the IRS’s “Chain of Fools,” as Ms. Franklin would belt. Retain an accountant to advise on any taxable event or liability before you close the estate or trust (even better: hire them immediately when you start acting as a fiduciary).

If you need advise on how to properly administer an estate or trust, please contact the Estate Attorneys of Grand Junction, Reams & Reams at 970-242-7847.

conservatorship - Petition for Appointment of a Conservator

Do you need to file a Conservatorship or Guardianship?

You might be considering the possibility of filing a conservatorship or guardianship to assist someone else or a loved one. There are many options, and a court proceeding is one of them. Assuming the role as conservator or guardian is an important responsibility. These proceedings give a lot of power to do many things. However, it is not the only option. In fact, it should not be your first or second option. These proceedings have grave constitutional restrictions that should be considered. You are basically taking over the person’s constitutional right to do certain things. Because of that, they should be used only when there is not a lesser restrictive alternative.

The first alternative is whether you operate and assist this person without any authority at all. Can the person generally take care of themselves, but you assist on a limited basis? In that case, you may not need to do anything; however, you should probably consider the second alternative in case incapacity is looming.

The second alternative is a power of attorney. There is a medical one and financial one. You can review each of them on our Resources page. If you are able to access the Colorado Revised Statutes, there is a statutory form under C.R.S. Section 15-14-741. These forms are approved by the State of Colorado’s Judicial Branch, but I recommend having an attorney review it. Statutes change over the years, and the linked forms could be out of date. There might be referenced clauses and statutes that require further explanation. An attorney can advise you on the importance of a power of attorney and other options available. He or she can also distance you from the presumption of undue influence. If an attorney is retained, he can protect the interest of the principal, i.e., the person you are trying to help. If you intend to take on this responsibility, be mindful that you have fiduciary and confidential duties to this person that can be addressed here at the Colorado Bar Association’s website. There are also general powers and specific powers given to the agent that need to be addressed.

If the person has the capacity to sign a power of attorney, this is the best alternative. If you are concerned about his or her capacity, speak with the person’s primary care physician and ask if the doctor can make a determination of capacity. You can also get an independent medical evaluation. As attorneys, we determine capacity before clients sign important documents as a precaution, but you should defer to the person’s doctor if there are concerns.

One advantage of a power of attorney over a conservatorship or guardianship is cost. Generally, a power of attorney drafted by an attorney may only cost $250-$300. It is also a private matter without the court’s involvement. With a conservatorship or guardianship, it may cost $2,000 or more. There are filing fees, notice requirements, court visitors, and hearing to determine whether this proceeding is necessary. After appointment, annual reports are due and scrutinized. Even if the person’s capacity is in question, the person may not want to give up any freedoms and it becomes a difficult process. If it is contested, the cost skyrockets.

If the person does not have the capacity to sign a power of attorney, you may have to file a conservatorship or guardianship. These are court proceedings, supervised by the judge and the court clerks.

A conservatorship is a proceeding where someone is appointed as the conservator to manage the assets of the protected person, much like a trustee. However, unlike a trustee, you are appointed by the court because the person is unable to manage their own finances, and it is either by consent or against their will.

A guardianship is a proceeding where someone is appointed to manage the person, usually their medical decisions and residency when they cannot do it themselves.

Both appointments have the ability to file a Medicaid application for the person.

If the person has medical and asset issues, consider filing for both proceedings. It will save time and cost to file them at the same time. If you think you need to be appointed immediately, you can file emergency proceedings, but you will need more evidence to prove that an emergency is necessary. If that is filed, an attorney will be court-appointed immediately to protect the interest of protected person. After the petitions are filed, a court visitor will interview all interested parties to determine if these proceedings are necessary and will make a recommendation the court. In these types of cases, you must have a hearing with the respondent present (there are exceptions to excusing the respondent if circumstances should allow it). They have the right to an attorney. These proceedings are not permanent. They can be terminated at any time upon filing a petition to terminate if proceedings are no longer necessary.

The Colorado Bar Association has more information regarding what to do after the appointment here: https://www.cobar.org/index.cfm/ID/20301

 

If you are in this situation, the process is not straight-forward. If you need assistance, please call the Grand Junction Estate Attorneys Reams & Reams at (970) 242-7847

5 Easy Steps to Effectively Administer an Estate or Trust or Conservatorship

Managing an estate is much like managing a trust or a conservatorship. It primarily involves gathering the assets, managing them for creditors, heirs, or any interested persons, and then distributing the assets to the rightful people upon conclusion. With all these entities, there are things you need if you want to effectively administer assets for another person or an estate. Here are five of the most important things:

  1. Hire an accountant or an attorney with estate tax knowledge. Most often, there is no tax issue to deal with if the estate only consists of a house (see the “step up” basis rule) and some personal property; however, I recommend having a tax professional tell you that rather than ignoring what could become a tax nightmare. Accountants sometimes charge a reduced rate to review your file to confirm a return is not needed. For example, if the estate or trust collects dividends, that is considered taxable income, and the estate should file a return for that year you received the dividends. If you close or terminate the estate or trust before paying that taxable income, as the fiduciary, you might be stuck with personally paying the bill or penalty if your forgot about it. By then, the heirs are probably long gone or have already spent their money.
  2. Inventory the assets as best as you can.  In most cases, heirs or interested persons can reasonably work out how to divide the assets. However, in every case, you should itemize and inventory everything as best as possible. Contested cases sometimes materialize overnight. At the very least, put tags like these on every piece of property the estate or trust owns. Take pictures of everything. These practices will separate your stuff from the estate’s stuff, and it will avoid commingling. You should then prepare an inventory. Microsoft Excel works great. We track our assets with Wasp MobileAsset. The price for that may be more than what you are willing to invest for one estate; however, you can use this excel template I made as a guide. It will keep track of what the estate owns, the estimated value, and what the items sold for. I would recommend quickbooks and quicken to track your expenses and income as well. When you conclude your administration, this report is vital to show the interested parties how everything was distributed. If you do not adequately track the personal property and expenses, somebody is going to ask you about a particular item six months into the administration. Without proper tracking, you will not have any idea where that item is located or where it went.
  3. Keep track of your time and expenses. Many executors or trustees that do not regularly to this type of work forget to track their time on a consistent basis. When administration has concluded, they end up trying to estimate how much time they spent. Without calendars or a billing system, estimating in lump sums will get contested and you may not be able to charge at all or at a very reduced rate. Buy a cheap or free calendar and put down your hours for each day. You can calculate a reasonable hourly rate later. Don’t forget about mileage either. Expenses are also reimbursable.
  4. Get appraisals or a market analysis for assets. If you are selling land or valuable assets, nothing is better than a professional appraisal to back up your sale. They are also great expert witnesses to rely upon in contested cases. Where there have been disputes over sale of assets, and the ones that stand up are professional appraisals behind them the sale. The assessed value with the county’s assessor and Zillow will give you a good estimate but do not solely rely on them.
  5. Never buy or take estate owned for yourself. This is axiomatic, but it needs to be repeated. Someone else has put you in charge to handle the estate or conservatorship. Someone entrusted you to do the right thing on behalf of the others involved and to not take from the estate. Even if you buy it for market value, you are putting yourself in a compromising position. Further, the transaction could be voidable if it is not expressly authorized by the court and after notice of interested persons.

 

In many cases, you probably can do most of the work on your own if you follow these rules. If you need assistance, maybe even limited advisement, please call the Grand Junction Estate Attorneys, Reams & Reams at 970-242-7847.