Conservatorships and Breach of Fiduciary Duty
It’s an unfortunate reality that your elderly loved ones may one day be unable to manage their finances. When this happens, the court may appoint a conservator to do this for them. A conservator owes a fiduciary duty to the conservatee, which means they must be committed to act in the best interest of that person.
In this article, you will learn the fiduciary duties that come with a conservatorship. You will also discover how a conservator can breach those duties and how they can be held accountable for improper actions.
Talk to a Breach of Fiduciary Duty Attorney Today
Do you suspect your loved one’s court-appointed conservator or guardian may not be acting in their best interests? Call Robinson & Henry at (303) 688-0944 today to begin your case assessment. Our attorneys can help you build a strong case to present to the court if you believe a conservator or guardian has breached the fiduciary duty they owe your family member.
Conservatorship vs. Guardianship
A conservatorship is an arrangement where someone acts as another person’s financial overseer. Many times, the person who needs someone to oversee their finances is nearing the end of their life and has become incapacitated in some way. In other words, they can no longer make financial decisions or take care of their ongoing financial obligations.
Guardianships are similar to conservatorships but they involve the care of that person’s self, including their medical care. Conservatorship is strictly limited to the management of a financial estate.
Both types of arrangements can also come into play in situations involving a minor child. If both parents of a minor child are deceased, incapacitated, or deemed by the court to be unfit the court will appoint a guardian and a conservator to care for the child.
Conservatorships are Limited to Managing Finances
Conservatorships are strictly limited to the management of someone’s financial estate in Colorado. A conservator’s responsibilities include paying the incapacitated person’s bills, depositing checks, and participating in the operation of any businesses in which the incapacitated person has ownership.
Conservators for Minors Who Receive Inheritances
In cases involving minor children, Colorado law requires the court to appoint a conservator if a child inherits an amount of money that is greater than $11,000. The conservator holds and manages the property until the minor is 21.
A conservator is also required when a child is listed as a beneficiary of a life insurance policy and if a child inherits any real estate or other titled property, a conservator is required to sell that property. Any proceeds from such a sale are retained for the minor child in the conservatorship until the minor is 21.
When a Court Will Appoint a Guardian
Under Colorado law, a guardian is someone the court appoints to ensure a minor child or incapacitated adult gets their basic day-to-day needs met, such as food, housing, medical needs, and clothes. The person the guardian cares for is called a ward.
A guardian can only handle small amounts of money on the protected person’s behalf, such as monthly stipends or Social Security benefits. The court will appoint a conservator to manage sums that exceed $24,000 annually.
Fiduciary Duties of a Conservator
Conservators and guardians are considered fiduciaries per Colorado Law. C.R.S. § 15-1-103
A fiduciary relationship exists between two people when one of them has a legal or ethical obligation to protect the other person’s interests.
Fiduciaries are responsible for three main duties:
- loyalty
- impartiality
- care
The duty of loyalty means that the conservator must look out for the protected person’s interests above all others, including their own. So, a fiduciary cannot have more than one fiduciary relationship if their duties would conflict.
The duty of care means that the fiduciary must use the watchfulness, attention, caution, and prudence that a reasonable person in the circumstances would use.
If a conservator fails to exercise any of these duties while acting under their fiduciary capacity, he or she could be found to be in breach of his/her fiduciary duties.
The Powers and Limitations of a Conservator
A conservator steps into the shoes of the protected person. Unless limited by a court order, a conservator has broad powers to act on behalf of the protected person’s financial interests. This generally means he or she may spend conservatorship money for the support, care, education, health, and welfare of the protected person.
A conservator may also provide reasonable payments to the protected person’s dependents, including child support and spousal maintenance. However, he or she may not take certain actions without prior approval from the court. For example, a conservator cannot give gifts unless:
- there are sufficient funds to provide for the needs of the protected person
- the gifts are those that an adult protected person would be expected to give, like birthday presents for relatives
- the combined gifts do not exceed 20 percent of the protected person’s income for that year.
After notice and only with express court approval, a conservator may:
- gift, convey, release or disclaim, create, revoke or amend trusts
- exercise rights and change beneficiaries under retirement plans, insurance policies, and annuities
- exercise rights to elective shares C.R.S. § 15-14-411
How a Conservator Breaches Their Fiduciary Duty
Colorado courts recognize the following elements for a breach of fiduciary duty claim:
- the defendant was acting as a fiduciary of the plaintiff
- the defendant breached a fiduciary duty to the plaintiff
- the plaintiff incurred damages
- the defendant’s breach of fiduciary duty was a cause of the plaintiff’s damages
Under Colorado law, the courts have substantial power in supervising and ensuring that the fiduciary is properly managing the beneficiary’s assets. For example, a judge can request a review of the fiduciary’s activities if the court learns that the fiduciary may be acting against the interests of the beneficiaries. C.R.S § 15-10-501
Understanding the Fiduciary Relationship
In Colorado, a fiduciary relationship exists between two people when one is under a duty to act or give advice for the benefit of the other on matters within the scope of the relationship.
A fiduciary relationship is also recognized as a matter of law when one party occupies a superior position relative to another and assumes a duty to act in the dependent party’s best interest. Rocky Mt. Expl., Inc. v. Graham, 2018 CO 54, ¶ 1, 420 P.3d 223, 225
The law is well established that conservators and guardians are considered fiduciaries in Colorado. If you have the required paperwork, this element should be easy to prove.
What is a Breach of Fiduciary Duty?
Once the existence of the fiduciary relationship is established, you must prove that the fiduciary duty has been breached. The breach can be based on willful or negligent conduct.
Remember, the fiduciary owes a duty to exercise the same care and skill that he or she would use to protect and preserve his or her own interests or property. That means a fiduciary cannot allow his or her own personal motives to interfere with that duty.
Failure to exercise the appropriate level of care is considered a breach of the fiduciary duty. Allowing personal motives to interfere with your ward’s care is also considered a breach of fiduciary duty.
Conflicts of Interest
Conservators must avoid conflicts of interest at all costs. Colorado law specifically states that “any transaction involving the conservatorship estate that is affected by a substantial conflict between the conservator’s fiduciary and personal interests is voidable unless the transaction is expressly authorized by the court after notice to interested persons.” C.R.S. § 15-14-423
This includes “any sale, encumbrance, or other transaction involving the conservatorship estate entered into by the conservator, the spouse, descendant, agent, or lawyer of a conservator, or a corporation or other enterprise in which the conservator has a substantial beneficial interest.”
Exceptions
Now, there are some instances in which a fiduciary may engage in a conflicted transaction. A conservator may obtain court approval to engage in a conflicted transaction if he:
(1) complies with the notice requirement of C.R.S. § 15-14-423 (2017) and
(2) establishes that the conflicted transaction is nonetheless reasonable and fair to the protected person. C.R.S. § 15-14-423
Let’s examine a relevant case: Black v. Black, 2018 COA 7, ¶ 1, 422 P.3d 592, 597
Black v. Black
When Bernard Black’s mother died in New York in 2012, Bernard believed that his children would inherit a third of his mother’s estate. He was mistaken.
Joanne, Bernard’s sister, had been diagnosed with chronic schizophrenia and was living homeless in Denver at the time of their mother’s death. In her will, Renata Black designated two-thirds of her estate to a special needs trust she created for Joanne. The remaining one-third of the estate was left to a trust for Bernard and his children.
The bulk of Renata’s estate consisted of multiple accounts totaling about $3 million. Bernard expected those funds to become part of the estate upon his mother’s death when they would be distributed between the special needs trust and his trust. But shortly before his mother passed away, Renata designated the accounts as payable-on-death directly to Joanne.
This news did not sit well with Bernard. He vowed to figure out a way to get what he considered his fair share of the inheritance.
Bernard is Appointed His Sister’s Conservator
Bernard decided the best way for him to get his inheritance was to become his sister’s conservator. Then, acting on her behalf, he could relinquish her legal claim to the money. Those funds would then revert to the estate and be distributed between the special needs trust and Bernard’s trust.
Bernard’s plan worked — temporarily. A Colorado court appointed him as Joanne’s conservator, and he promptly diverted about $1 million to his trust.
Bernard’s Fiduciary Duty Called into Question
Two years later, Joanne moved to New York where parallel guardianship proceedings were subsequently initiated. During those proceedings, Bernard admitted what he had done.
Joanne’s attorney filed a motion arguing that “in failing to ‘preserve and maintain [Joanne’s] assets for her sole benefit,’ Mr. Black had breached his fiduciary duty as Joanne’s conservator.” Black v. Black, 2018 COA 7, ¶ 15, 422 P.3d 592, 598
A Denver probate court agreed that Bernard breached his fiduciary duty by converting Joanne’s assets for his own benefit.
The integrity of the conservatorship was undermined from its inception by Bernard’s undisclosed conflict of interest, Judge Elizabeth Harris wrote:
“Mr. Black admitted that he sought the appointment as conservator for the purpose of disclaiming Joanne’s interest in the [payable-on-death] assets so that they could be redistributed in accordance with his and his children’s expectations of his mother’s estate plan. He agreed that the ‘interests of [his] children were in tension with the interest of Joanne Black,’ and that this ‘tension’ amounted to a conflict of interest. But he did not tell the probate court that he was laboring under this conflict of interest when he filed his petition to be appointed as Joanne’s conservator.”
The Denver probate court ordered Bernard to reimburse his sister $1.5 million plus triple damages for the theft.
How to Defend a Breach of Fiduciary Duty
A typical breach of fiduciary duty defense consists of proving that the agent acted within the boundaries and agreements of his or her position.
The following defenses can be used for breach of fiduciary duty:
- lack of fiduciary duty
- the statute of limitations, which is three years, has passed to bring the lawsuit
- the actions are within the bounds of the fiduciary relationship
- the other party contributed to the wrong and also committed a breach
Good Faith Defense
The 2011 case Estate of Keenan v. Colo. State Bank & Trust set a legal precedent that conservators can “reasonably and in good faith oppose a protected person’s motion to terminate the conservatorship.”
Additionally, a conservator can also collect expenses, including reasonable attorney fees, from the protected person’s estate in a good faith defense. C.R.S. § 15-14-417(3) (2010)
Colorado Court Allows Conservator to Collect Attorney Fees
In 2001, a Boulder-area hospital’s error left Matthew D. Keenan with a catastrophic brain injury. Keenan received a multi-million-dollar medical negligence settlement as a result.
The settlement money was placed in an income trust with Keenan’s mother serving both as guardian of her son’s health and his money manager.
However, by 2006 Keenan was ready to make his own decisions again. His attorney and his mother’s lawyer reached an out-of-court agreement that allowed Keenan to move into his own apartment. Colorado State Bank and Trust was the trustee of his medical settlement funds, and it would manage his money as a conservator.
A year later, Keenan petitioned the court to end the conservatorship. But Colorado State Bank and Trust fought back. The bank argued that Keenan remained unfit to manage his own finances.
On top of its annual rate, the bank charged Keenan almost $7,000 for extra services in 2007 — including the cost of responding to Keenan’s request that it resign as his conservator.
These funds came directly from Keenan’s estate, the Denver Post reported in 2010.
In December 2007, Boulder District Judge Morris Sandstead replaced the bank with a new conservator Keenan had selected.
Keenan then asked the bank to refund about $65,000 it had spent from his estate to oppose him. The bank responded by hiring a Denver law firm to defend its decisions, according to the Post.
Keenan’s attorney argued that the bank had an inherent conflict of interest when it spent Keenan’s money to oppose him in court. However, a Boulder district judge disagreed:
Estate of Keenan v. Colo. State Bank & Tr., 252 P.3d 539, 540 (Colo. App. 2011)
Legal Remedies for Breach of Fiduciary Duty
If the court finds a conservator or guardian has breached their fiduciary duty to your loved one, that person will most likely face consequences. A judge can order the conservator to pay back what they stole from your family member’s estate and even hand down other penalties.
Emergency Action
Colorado law gives courts permission to take action against a fiduciary without prior notice or hearing “if it appears to a court that an emergency exists because a fiduciary’s actions or omissions pose an imminent risk of substantial harm to a ward’s or protected person’s health, safety, or welfare or to the financial interests of an estate.” C.R.S. § 15-10-503
In an emergency, the court may:
- immediately restrain, restrict, or suspend the powers of the fiduciary
- direct the fiduciary to appear before the court
- take any other appropriate actions to protect the ward or protected person or the assets of the estate
Monetary Damages
Under Colorado law, courts may surcharge the fiduciary for any damage or loss to the estate, beneficiaries, or interested persons. Such damages may include compensatory damages, interest, and attorney fees and costs. C.R.S. § 15-10-504
However, the fiduciary must be notified by mail about when and where the surcharge proceeding will take place. The notice must be received 14 days before the hearing. C.R.S. § 15-10-401
Civil Theft Damages
In Black v. Black, the court surcharged Bernard in the amount of the funds he converted from his sister’s trust. Then it tripled those damages under Colorado’s civil theft statute.
“A civil theft claim is cognizable by the probate court when the claim is logically related to the estate.” C.R.S. 13-9-103
To recover civil theft damages, you must prove that the conservator committed all of the elements of criminal theft. A person commits theft when he “knowingly obtains, retains, or exercises control over anything of value of another without authorization or by threat or deception” with the intent to deprive the other person permanently of the thing of value. Black v. Black, 2018 COA 7, ¶ 1, 422 P.3d 592, 597
Talk to a Breach of Fiduciary Duty Attorney
Conservatorships are meant to protect our most vulnerable people. A conservator is legally obligated to place the protected person’s interests above their own, and the courts do not take it lightly when someone fails to do so. If your loved one’s conservator has breached his or her fiduciary duties, our conservatorship attorneys will ensure that these improper actions stop and that your family is made whole again. Call 303-688-0944 today to begin your case assessment.