The Colorado Court of Appeals recently affirmed the probate court’s holding that the former conservator and brother of a woman with mental illness had breached his fiduciary duty and engaged in theft when he converted his sister’s assets to benefit himself and his children.
Here at & , LLC, we provide legal guidance to people with fiduciary duties to protect interests of other people, often because the protected person is medically or cognitively vulnerable. We represent trustees, personal representatives, guardians, conservators, people exercising powers of attorney, and others with legal responsibilities toward people, trusts or estates.
We also defend fiduciaries accused of breaching their duties or failing to carry out their legal responsibilities. We recently published a post about fiduciary wrongdoing and potential legal remedies in Colorado.
A conservator’s fiduciary duty
In the January 25 Court of Appeals opinion in Black v. Black, Bernard Black was the conservator — someone appointed to manage the financial affairs of an incapacitated person — of his sister Joanne Black, who has schizophrenia.
The problem grew out how Bernard and Joanne’s mother distributed her assets after death. Bernard had thought his kids would get one-third of their grandmother’s assets, because she had designated two-thirds of her estate to a special needs trust for the benefit of Joanne and one-third to a trust for Bernard and his children.
Bernard was surprised to learn that his mother had designated Joanne as the beneficiary of almost all the mother’s accounts, in total worth $3 million (the bulk of her estate) to be paid at death, rather than to her estate. She left only a tiny fraction to his children from his first marriage as account beneficiaries outside of the estate.
Accordingly, the trust for Bernard and his kids would have received much less than Bernard had expected.
Conflict of interest
After their mother died, Bernard asked the probate court to appoint him as Joanne’s conservator to protect the $3 million their mother had directed directly to Joanne, instead of to the special needs trust. He told the court that he needed to secure the money so it was not “wasted or dissipated.”
Part of the conservatorship appointment included a probate court order allowing Bernard to disclaim this money on Joanne’s behalf and instead put it into a supplemental needs trust for her benefit. However, Bernard only put two-thirds of the funds into the special needs trust and the rest into the trust for the benefit of him and his kids. He also placed $300,000 from their mother’s Roth IRA into accounts for his children.
When these irregularities were brought to the probate court’s attention, it found Bernard had breached his fiduciary duty and not adequately explained to the court when he was appointed that he planned to take one-third of the assets after the disclaimer for him and his children. The court said this action was “deceptive and undertaken in bad faith” and also constituted civil theft. He was ordered to reimburse his sister $1.5 million plus triple damages for the theft.
Fiduciary duty
The Court of Appeals explained that a conservator owes a “duty of undivided loyalty,” prohibiting the conservator from engaging in a transaction using the protected person’s assets to benefit the conservator him or herself.
Colorado law allows a conservator to initiate a reasonable transaction involving conflict of interest if interested persons get notice and the court allows it. The appeals court said that Bernard did not give objectively reasonable notice to the probate court of his intention to divert some of Joanne’s funds to himself and his kids. He did not even disclose the existence of the conflict itself.
Bernard even “acknowledged … that he sought the conservatorship for the very purpose of disclaiming the assets.” in the initial conservatorship inventory of her assets, he also omitted the money that he had diverted away from Joanne’s trust.