June 25, 2019

Colorado Court of Appeals: Monies Held in Joint Accounts Not Part of Probate Estate

The Colorado Court of Appeals issued its opinion in In re Estate of Sandstead on Thursday, April 7, 2016.

Auriel and Willard Sandstead attempted to avoid probate by titling their real estate and bank accounts jointly in their names and two of their three daughters’ names. The couple executed wills in 1991 and again in 2000. After Willard’s death, Auriel presented only the 1991 will for probate and neglected to mention the 2000 will.

Auriel held proceeds from the sale of a family farm in a joint bank account with the two daughters, Vicki Sandstead (Sandstead) and Shauna Sandstead Corona (Corona). After an altercation with a Wells Fargo employee, Sandstead transferred $200,000 out of the joint account and into an account at Citizens Bank in Massachusetts that she held jointly with her mother but not with Corona. Sandstead used those funds for her mother’s benefit during her lifetime and also to conduct repairs on some of the properties held jointly.

After Auriel died, Sandstead and Corona executed small estate affidavits as to their parents’ personal property, since most of the assets had been removed from probate by joint titling with their daughters. Sandstead noticed some items missing from the estate, and opened a probate case where she was named as PR. Corona petitioned to remove Sandstead as PR, and a successor was agreed upon by the sisters. Corona moved for surcharge, attorney fees, and other relief against Sandstead as to her actions as PR, specifically alleging Sandstead breached her fiduciary duties to Corona because of the $200,000 transfer prior to their mother’s death. The district court surcharged Sandstead for the $200,000 transfer and two other transfers occurring before the probate estate was opened.

At some point, the sisters became aware of the 2000 will. Corona challenged the will as having been revoked by their mother. Sandstead and the two grandsons included as heirs in the 2000 will argued that the in terrorem clause in the 2000 will barred Corona from recovering under the will. The district court granted Sandstead’s motion for enforcement of the in terrorem clause in the 2000 will against Corona. The district court noted that if the parents were unaware of the 2000 will as Corona claimed, it was hard to imagine how they could have revoked it. Both sisters appealed.

On appeal, the Colorado Court of Appeals reversed the district court’s surcharge. The court held that Sandstead had a legal right to transfer the moneys due to being a signatory on the joint bank account. The assets in the Citizens Bank account were never part of the probate estate and therefore could not have been subject to surcharge. The court found that Sandstead had never intended for the monies to be included in the probate estate, and had vehemently denied their inclusion when the issue was raised in court. The court of appeals reversed the district court’s surcharge against Sandstead. The court upheld the district court’s enforcement of the in terrorem clause in the 2000 will against Corona, finding that she could not have reasonably believed that her mother had revoked the 2000 will since there was no evidence Willard and Auriel had executed subsequent wills or destroyed the 2000 will, the only two ways enumerated in the statute to revoke a will.

The district court’s order was reversed in part, affirmed in part, and remanded with instructions.

Colorado Court of Appeals: Consent of All Beneficiaries Necessary to Ratify Action Contravened by Terms of Trust

The Colorado Court of Appeals issued its opinion in In re Estate of Foiles: Foiles v. Foiles on Thursday, August 14, 2014.

Trust—Beneficiaries—Breach of Fiduciary Duty.

The trustees of the Clyde Foiles Trust were Ruth Foiles, Larry Foiles, and the Farmers State Bank of Fort Morgan (Bank). Larry Foiles, along with Larry’s two children and his nephew Gregory Foiles, were beneficiaries of the trust. The trust prohibited Larry Foiles from exercising powers as trustee that were directly or indirectly for his own benefit, and required that any such actions be taken solely by the Bank. Gregory Foiles contested two transactions undertaken at least in part by Larry Foiles, alleging that the transactions were a breach of his fiduciary duty. The trial court entered judgment in favor of Larry Foiles.

On appeal, Gregory Foiles contended that the trial court improperly ruled on his breach of fiduciary duty claim. In the absence of a trust provision that would allow ratification by a co-trustee of otherwise invalid actions of a trustee, only the consent of all beneficiaries, with full capacity to give such consent and full knowledge of the relevant facts, could ratify an action of a trustee that is in violation of the express terms of a trust. Here, because Larry Foiles’s undertaking of the 2001 Section 1031 exchange of real property violated the terms of the trust, the Bank, as co-trustee, could not validly ratify that action. Under the terms of the trust, only the Bank would have been authorized to undertake such a transaction. Therefore, Gregory Foiles established a prima facie claim that Larry breached his fiduciary duty, and the trial court erred in ruling that ratification by the Bank precluded Gregory Foiles’s breach of fiduciary duty claim. The judgment was reversed and the case was remanded to the trial court to make additional findings as to whether Larry Foiles met his burden to go forward with some evidence that the questionable transaction was fair and reasonable, and, ultimately, whether he was liable for breach of fiduciary duty in connection with that transaction.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Where Property Held By Trust Was For Benefit of Taxpayer, Foreclosure Of Tax Lien Proper

The Tenth Circuit Court of Appeals published its opinion in United States v. Tingey on Wednesday, May 29, 2013.

The district court permitted the government to foreclose on federal tax liens on a ski cabin (the Ski Cabin) titled in the name of the D.E. Brown Family Trust (Family Trust), whose beneficiaries were Douglas Brown’s wife and children. The taxes were owed by Douglas Brown (Brown) and his wife (together, the Browns), not the trust, but the court found that the Browns were the beneficial owners of the cabin because Brown had a purchase-money resulting trust (PMRT) arising from his having purchased the cabin and then conveyed it to the Family Trust. The district court also held that under federal law, the Family Trust held legal title to the cabin as nominee for the Browns. The trustee of the Family Trust, Robert Tingey, appealed.

Tingey first argued that that the government waived the right to assert that the Browns held the beneficial interest in the cabin. Tingey based his waiver argument on a stipulated order in Brown’s criminal securities-fraud case, which required that the proceeds of certain stock held by the Family Trust be forfeited to the United States as restitution, but lifted any further restraint on remaining trust property. Tingey argued that the government knew of the Family Trust’s claim to the cabin at the time of the stipulation. The Tenth Circuit held that even if “the government was fully aware of the Family Trust’s claims to the cabin, its agreement to the stipulated order did not waive its rights to pursue a tax claim. The order said nothing about tax liability or who had beneficial interests in the Ski Cabin.”

Tingey next argued that the district court erred in concluding that the Family Trust held the cabin in a PMRT for Brown’s benefit. The Tenth Circuit agreed with the district court that clearly Brown paid the purchase price for the cabin before legal title transferred to the Family Trust, thus meeting a threshold requirement for a PMRT.

The court also rejected Tingey’s argument that when an express trust holds legal title, a resulting trust is not possible.

Tingey challenged the district court’s ruling that the government demonstrated by clear and convincing evidence the final requirement for finding a PMRT, that Brown intended to retain the beneficial interest in the Ski Cabin. Brown made note payments out of personal funds, used the property without the trustee’s knowledge, rented the cabin out without the trustee’s involvement, and performed maintenance on the cabin. Additionally, the testimony of Tingey established that Brown set up the trust to shield the cabin from his creditors. The court affirmed the district court’s holding that the Ski Cabin was held by the Family Trust in a PMRT for the benefit of Brown.

Colorado Supreme Court: Colorado Securities Act Does Not Express Strong Public Policy Implication Voiding Choice of Forum Clauses

The Colorado Supreme Court issued its opinion in Cagle v. Mathers Family Trust on Monday, February 4, 2013.

Forum Selection Clauses in Contracts—Colorado Securities Act—Anti-Waiver Provisions.

The Supreme Court held enforceable the forum selection clause in the sales contract in this securities case, requiring the parties to litigate in Texas. The clause is not voided by Colorado public policy as expressed in the Colorado Securities Act (CSA) or by the CSA’s anti-waiver provision, which bars agreements that waive compliance with the substantive provisions of the CSA. The court of appeals’ judgment was reversed, and the case was remanded to the court of appeals with instructions to return it to the trial court for reinstatement of the trial court’s grant of the motion to dismiss based on the forum selection clause in the parties’ sales contract.

Summary and full case available here.

Colorado Supreme Court: Funds Disbursed to Limited Liability Company by Member Need Not Be Held in Trust Under Colorado’s Construction Trust Fund Statute

The Colorado Supreme Court issued its opinion in Yale v. AC Excavating, Inc. on Monday, February 4, 2013.

Construction—Mechanics’ Liens—Statutory Trusts

The Supreme Court held that an LLC member’s voluntary injection of capital into the company in this case did not constitute “funds disbursed to [a] contractor . . . on [a] construction project” under CRS § 38-22-127(1). Therefore, such money was not required to be held in trust under that provision. The Court further held that the court of appeals erred in remanding the case for further proceedings to determine whether petitioner, a member and manager of the LLC, was civilly liable for theft under CRS §§ 38-22-127(5), 18-4-401, and 18-4-405, for using the funds in a manner inconsistent with the trust obligations of § 38-22-127(1). Accordingly, the judgment of the court of appeals was reversed.

Summary and full case available here.

HB 12-1047: Waiving Non-Safety Licensing Standards for Kinship Foster Care

On January 11, 2012, Rep. John Kefalas and Sen. Linda Newall introduced HB 12-1047 – Concerning the Waiver of Non-Safety Licensing Standards for Kinship Foster Care. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill allows a county directory of social services, or his or her designee, to waive certain non-safety licensing standards for kinship foster care if certain conditions are met and to limit or restrict a license for kinship foster care. The state board of human services is directed to promulgate rules to define “kinship foster care” and for the waiver of certain non-safety licensing standards for kinship foster care.

Summaries of other featured bills can be found here.