Avoiding Living Probate

• Publication year: 1998
• Pages: 5

27 Colo.Law. 5 Colorado Lawyer 1998.

1998, March, Pg. 5. Avoiding Living Probate

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Vol. 27, No. 3, Pg. 5

The Colorado Lawyer
March 1998
Vol. 27, No. 3 [Page 5]

Articles

Avoiding Living Probate
by James R. Walker
C James R. Walker 1998

More than twenty years after its adoption, the Colorado Probate Code stands as one of Colorado's most successful legislative efforts. The Colorado Probate Code ("Colorado Code") continues to guide effectively and judiciously the resolutions of claims and the transmission of property for Colorado decedents Notwithstanding the Colorado Code's time-tested success an increasing number of Colorado trust and estate practitioners endorse the concept of avoiding probate through the use of a funded revocable trust.1

This article addresses the need and means to avoid another statutory system, namely the conservatorship process.2 Incapacitated adults can avoid conservatorship or "living probate" by creating and using instruments such as a durable power of attorney or a funded revocable trust. After reviewing the consequences of neglecting to plan for incapacity, this article discusses these two instruments as well as possible challenges to their use.

THE NEED FOR DISABILITY PLANNING

Disability planning is becoming a more serious issue for many individuals.3 Given that the number of elderly Colorado residents continues to grow and the life expectancy of U.S. citizens continues to expand with each medical advance, the number of disabled protected persons can only continue to climb.4

Disabled individuals who become incapacitated may leave their family members in a difficult situation. In the event of a disability, family members may be forced to initiate a conservatorship proceeding in order for such members to assume the authority to handle their loved one's financial affairs.

The conservatorship process is often painful and expensive.5 The petitioner is required to plead threshold matters, such as incapacity, with particularity, and support assertions in the pleadings with sufficient objective documentation. In weighing the imposition of a conservator, the court must encourage maximum self-reliance and independence and may make appointments and other orders only to the extent necessitated by the incapacitated person's mental and adaptive limitations.6

A conservatorship determination involves a judicial finding of incapacity, which, in a contested case, occurs only after an extended process of attorney representation; visitor interviews and reports; physician examinations; and, ultimately, a trial, with cross-examination of witnesses. The process must be undertaken in a court, with all its inherent public procedures and often protracted delays. Moreover, family members and loved ones are typically expected to provide evidence of the disabled person's incapacity.

Reform of the conservatorship process is the subject of a new legislative effort of the National Conference of Commissioners on Uniform State Laws and, ultimately, may be adopted in Colorado.7 Until, and perhaps even after, its legislative reform, Colorado's conservatorship process offers significant court involvement and oversight.

Based on these serious issues, it seems that many clients would be best served by avoiding living probate. In addition to leaving the family with the need for court involvement, the failure to plan for disability may restrict or even foreclose estate planning options. These problems, including the difficult issues regarding inter vivos gifting, are discussed below.

ESTATE PLANNING THROUGH A CONSERVATORSHIP

Planning for a prolonged disability should embrace the protected person's estate planning efforts. Many people who have spent years accumulating assets often become intensely interested in planning the disposition of their property interests at death. An estate plan, however, is an integrated process consisting of wealth accumulation, management, and transfer during lifetime and at death.

Increasingly, federal tax incentives strongly encourage lifetime dispositions of accumulated wealth, including gifts. For many, the appointment of a conservator will restrict or foreclose lifetime dispositions of a protected person's assets.

Having addressed investment and other asset management issues, a conservator may desire to press forward with implementation of an estate plan. In some cases, a conservator could even view his or her role as a fiduciary charged with the maintenance and even acceleration of an estate plan.

To initiate and perhaps continue lifetime dispositions, a conservator must receive a court order approving the transfer. This is problematic. In many proceedings, a conservator will lack evidence that the protected person made or intended to make any lifetime transfers to his or her children, charities, or others. Lacking contemporaneous evidence, a conservator may attempt to derive support for lifetime gifts from the terms and provisions of a protected person's will.

Usually, this support is unwarranted since a will operates only upon death,8 and survival is a prerequisite to eligibility to receive a bequest under a will. If one or more of the protected person's children has predeceased, the will may omit certain family members. Moreover, the conservator and his or her siblings may or may not be devisees of the will. Faced with insufficient evidence, a court may have no choice but to withhold judicial support for an inter vivos transfer after concluding that the conservator wants the court to disregard the protected person's intended testamentary transfers and to substitute an alternative disposition plan.

Judicial Support for Gift Transfers

Traditionally, courts have been called on to use their inherent equitable powers to support gratuitous transfers of the protected person's property.9 Colorado, like many states, has codified and supplanted this common law authority by enacting statutory provisions that permit gifts by fiduciaries of the protected person's property under limited circumstances.10

Colorado law authorizes transactions "necessary or desirable to achieve any security, service, or care arrangement meeting the foreseeable needs of the protected person."11 This standard, however, is narrow. Because many estate planning gifts fall outside these parameters, a conservator often must rely on an alternative test known as the "best interests" test to support a gifting program.

Best Interests Test

Instead of relying on Colorado's "security and care arrangement" standard, a conservator often is required to support an inter vivos transfer under the "best interests" test. Colorado law provides that a court may authorize gifts greater than 20 percent of the yearly income of the estate only "if satisfied . . . that it is in the best interests of the protected person, and that [he or she] either is incapable of consenting or has consented to the proposed exercise of power."12

Under Colorado's best interests test, a court should permit only those transfers a prudent person in the protected person's position would execute were he or she able, after inquiring into that person's personality and previous donative patterns.13 In other words, the determination of best interests14 under Colorado's statutory provision requires a coupling of the wishes of the protected person, so far as they can be ascertained, with what a court deems advisable in managing the protected person's property and other affairs. To support a large lifetime transfer under this test, a Colorado court would be bound by this statutory language, which differs from language employed in other jurisdictions.15

Using this standard, most Colorado courts will consider subjective factors skeptically.16 In many cases, evidence of what the particular protected person would do may be scarce. If the protected person has labored under the disability for a long time or if the protected person was never competent, the court can only speculate as to what the protected person would have wanted.17

The lack of adverse parties may reduce clarification of the person's probable intent. Only the conservator may locate evidence of subjective intent. The state, the nominal adversary in this type of proceeding, suffers from a great disadvantage in divining the protected person's subjective intentions.18 Often, counsel for the fiduciary need only divulge facts helpful to support a transfer free from the...