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In re Estate of Sandstead

Court of Appeals of Colorado, Second Division

April 7, 2016

In re the Estate of Auriel Josephine Sandstead, a/k/a Auriel J. Sandstead, a/k/a Auriel Sandstead, deceased.
Shauna Sandstead Corona, Appellee and Cross-Appellant. Vicki J. Sandstead, Appellant and Cross-Appellee,

         Logan County District Court No. 09PR30 Honorable Michael K. Singer, Judge


          Announced April 7, 2016 Peter R. Bornstein, Greenwood Village, Colorado, for Appellant and Cross Appellee.

          Solem Mack & Steinhoff PC, Peter T. Harris, Nathan C. Williams, Englewood, Colorado, for Appellee and Cross Appellant.


          J. JONES JUDGE.

         ¶ 1 This is a probate case. The former personal representative (PR) of the estate, Vicki J. Sandstead (Sandstead), appeals five orders: (1) the October 4, 2011, order regarding the motion for surcharge; (2) the May 11, 2012, order denying her motion for reconsideration or for a new trial; (3) the June 14, 2012, order granting in part, and reserving in part, the motion for surcharge and other relief; (4) the December 9, 2013, order concerning attorney fees, costs, and expenses; and (5) the December 20, 2013, order concerning the motion for final surcharge. We affirm in part, reverse in part, and remand with directions the first, third, and fifth orders regarding surcharges. Because of how we resolve Sandstead's challenges to the first, third, and fifth orders, we need not address the second order denying the motion for reconsideration or for a new trial. We vacate and remand the fourth order concerning attorney fees, costs, and expenses.

         ¶ 2 Shauna Sandstead Corona (Corona), an heir of the decedent, cross-appeals the district court's October 21, 2013, order enforcing an in terrorem clause. We affirm that order.

         I. Background

         ¶ 3 Willard and Auriel Sandstead were married, had three daughters, and lived in Sterling, Colorado. They owned several pieces of real property (a farm in Colorado, a condominium in Florida, and a house in Sterling, Colorado) and a large collection of personal items.

         ¶ 4 Willard and Auriel executed wills in 1991; subsequently, they each executed second wills and a related revocable trust in 2000. On February 28, 2007, they signed a revocation of the revocable trust on advice from their attorney, who had not seen the trust. And on March 6, 2007, they also signed durable powers of attorney naming two of their daughters - Sandstead and Corona - as their attorneys-in-fact.

         ¶ 5 Throughout their lives, Willard and Auriel sought to minimize or avoid probate of their estates upon their deaths. They took steps to simplify their affairs so that Sandstead and Corona would divide their property equally without the property entering probate.[1]

         ¶ 6 One such step involved the sale of the family farm. Willard and Auriel began to arrange the sale before Willard's death. Willard died on March 14, 2007. Auriel proceeded with the sale and put the money from the sale into an account at Wells Fargo bank in Sterling. The Wells Fargo account was a multi-party account with Auriel, Sandstead, and Corona as joint signatories. It is undisputed that Auriel placed the farm sale funds into this multi-party account to avoid probate on her death.

         ¶ 7 After Willard's death, Auriel opened his estate by lodging his will from 1991, but did not tell her attorney that Willard had executed a second will in 2000.

         ¶ 8 In June 2007, Sandstead moved about $200, 000 from the Wells Fargo account to Citizens Bank accounts in Boston, where Sandstead lived.[2] The only two signatories on the Citizens Bank accounts were Sandstead and Auriel; though Corona was aware of the accounts, she was not a signatory on any of those accounts because of logistical difficulties relating to Corona living in Mexico (where she had lived since 1977). Sandstead testified that her mother agreed to move the money because Sandstead had had a falling out with a banker at Wells Fargo and it would be easier for Sandstead to manage the funds where she lived. Sandstead considered the money in the Citizens Bank accounts to be Auriel's money to be used for Auriel's care until her death, and then to be split equally between herself and Corona, as her parents intended.

         ¶ 9 Both Sandstead and Corona were placed on the titles for the house in Sterling and the condominium in Florida before their parents' deaths.[3] Before Auriel's death, Sandstead used money from the joint Citizens Bank accounts to pay for work and trips allegedly related to the condominium in Florida.

         ¶ 10 Auriel died on November 25, 2007. On that date, the Wells Fargo account had a balance of $67, 972, and the Citizens Bank accounts had a total balance of $179, 790.46.

         ¶ 11 On June 18, 2008, both Sandstead and Corona met with their parents' lawyer to sign a small estate affidavit representing that the value of the estate was less than $50, 000.[4] Willard and Auriel's lawyer believed a small estate affidavit was appropriate since Willard and Auriel had deeded their real property to their daughters and had placed their money in joint bank accounts, leaving only personal property in the estate.[5]

         ¶ 12 About a year later, Sandstead contacted an attorney because she believed personal items were missing from her mother's estate. The attorney told Sandstead that to try and reclaim estate property, she would have to file a probate case. Sandstead opened a probate case, and was appointed PR in June 2009. After being appointed PR, Sandstead opened an estate account at Citizens Bank and placed funds from the other Citizens Bank accounts into this estate account.

         ¶ 13 After their mother's death, Sandstead and Corona began to disagree about matters relating to their parents' former property. Disagreements arose regarding gifts from the estate, expenditures from the bank accounts, and distribution of money.

         ¶ 14 On May 11, 2010, Corona filed a petition to remove Sandstead as PR. On June 10, 2010, Sandstead resigned as PR, and she and Corona agreed to the appointment of a successor.

         ¶ 15 On February 10, 2011, Corona filed a motion for surcharge, attorney's fees, and other relief against Sandstead expressly limited to Sandstead's alleged actions as PR. See § 15-10-504(2), C.R.S. 2015 (providing that a court may surcharge a "fiduciary for any damage or loss to the estate, beneficiaries, or interested persons" resulting from a breach of fiduciary duty or improper exercise of power by a fiduciary). The motion alleged, in only the most general terms, mismanagement of estate funds and property, and "damage or loss to the estate and/or to [Corona]."

         ¶ 16 On July 11, 2011, seven days before the surcharge hearing, Sandstead filed a motion in limine to prohibit evidence regarding the $230, 000 transferred from the Wells Fargo account to Citizens Bank because the transfers had occurred before Auriel's death and the funds were not property of Auriel's estate. The court granted the motion in limine, ruling that because Corona had sued Sandstead only in her capacity as PR, the court did not have personal or subject matter jurisdiction regarding any claims against Sandstead as an alleged fiduciary before being appointed PR.

         ¶ 17 Despite granting the motion in limine, at the hearing on July 18, 2011, the court allowed Corona's attorney to ask questions about transactions and money transfers occurring before Auriel's death. The court said such questioning was relevant to trace where the estate account money came from, but agreed with Sandstead's attorney that it was not relevant to any dispute between the sisters regarding funds expended before Sandstead was appointed PR because that was not a probate issue. At the hearing, Corona's counsel argued repeatedly that Sandstead had breached her fiduciary duties to Corona personally.[6]

         ¶ 18 In its first written post-hearing order on the motion for surcharge, the court found, notwithstanding its prior rulings, and notwithstanding Corona's counsel's contention that Sandstead had violated her fiduciary duties to Corona, that Sandstead was an estate fiduciary as to the money in Citizens Bank accounts because Sandstead had acted under an agency created by the March 2007 durable power of attorney in transferring the money from Wells Fargo to Citizens Bank, and had established an implied trust, the assets of which were later administered in the estate under Sandstead's authority as PR. The court determined that its prior granting of the motion in limine was merely a preliminary order that it could reconsider based on changed circumstances; the evidence at trial persuaded the court to change course. The court ordered surcharges against Sandstead for actions she took before Auriel's death; after Auriel's death, but before her appointment as PR; and after her appointment as PR. Many of those actions related to the farm sale funds originally placed in the Wells Fargo account, but some related to tangible estate property. The court reserved judgment on certain potential surcharges pending investigation and reports.

         ¶ 19 Sandstead filed a motion for reconsideration or for a new trial in February 2012, objecting to the court's decision to surcharge her for actions predating her appointment as PR and relating to expenditures of funds transferred from the Wells Fargo account before Auriel's death. The court denied the motion on May 11, 2012.

         ¶ 20 That same day, Corona filed a motion for final surcharge and other relief. The court issued an order granting the motion in part and reserving ruling in part on June 14, 2012.

         ¶ 21 Sometime after the surcharge hearing, Willard and Auriel's 2000 wills and the 2000 revocable trust instrument were discovered. On September 21, 2012, Sandstead filed a petition for formal probate of Auriel's 2000 will and a motion for determination of the validity of the 2000 revocable trust. In 2013, the court held a hearing on the validity of the 2000 will and revocable trust. Corona challenged the validity of the 2000 revocable trust because of the written revocation signed by both Willard and Auriel. Corona contended Willard and Auriel had also revoked their 2000 wills because they were unaware those wills existed, had relied on their 1991 wills, and their conduct indicated their intention that their estate be divided evenly between Sandstead and Corona. (The 2000 wills and trust gave ten percent of their residual estates to each of two grandsons and forty percent each to Sandstead and Corona, thereby reducing each sister's share.)

         ¶ 22 The court held a hearing on the validity of the 2000 will and trust on February 25, 2013, and admitted Auriel's 2000 will to probate on March 21, 2013.

         ¶ 23 The court found the trust revocation was invalid because of Willard and Auriel's impaired functioning and insufficient information from their attorney. The court also found that Auriel's 2000 will was valid because under section 15-11-507(1) and sections 15-11-803 and -804, C.R.S. 2015, a will can be revoked in only two ways - by a physical act or by means of a later will - and neither had occurred. And the court found that there was no evidence Willard and Auriel intended to disinherit their grandchildren.

         ¶ 24 On September 30, 2013, Sandstead and her two nephews filed a motion to enforce the incontestability provision (the so-called "in terrorem clause") in the 2000 trust. They argued that because Corona had contested the validity of the 2000 will and trust, she could no longer be a beneficiary of either. Corona argued that the in terrorem clause was not enforceable because she had probable cause to challenge both the 2000 will and the trust.

         ¶ 25 On October 21, 2013, the court issued an order enforcing the in terrorem clause as to the 2000 will but not as to the trust. The court found that while Corona had probable cause to challenge the trust - based on the written revocation - she lacked probable cause to challenge the will; Corona had not produced evidence that she could reasonably have thought the will had been revoked by either means authorized under the Probate Code, and there was no evidence that Willard and Auriel had intended to disinherit their grandchildren.[7]

         ¶ 26 Corona filed a motion to reconsider, which the court denied. On December 9, 2013, the court issued an order granting Corona attorney fees and costs relating to the surcharge motion. And on December 20, 2013, the court issued an order against Sandstead and in favor of the estate concerning the motion for final surcharge.

          II. Discussion

         ¶ 27 Sandstead contends that the district court erred by: (1) surcharging her for actions she took before her appointment as PR relating to non-probate funds; (2) surcharging her for actions as to which the court had ruled Corona could not present evidence; and (3) awarding attorney's fees to Corona.

         ¶ 28 Corona contends that the district court erred in enforcing the in terrorem clause to preclude her from benefiting under Auriel's 2000 will.

         ¶ 29 We address each party's contentions in turn.

         A. Surcharges

         ¶ 30 In essence, Sandstead contends that the statutes under which probate cases are administered, and which pertain specifically to the surcharging of fiduciaries, did not give the district court authority to decide disputes between her and Corona over expenditure of the farm sale proceeds because those funds were not estate funds and she did not expend those funds in any fiduciary capacity vis-à-vis the estate.

         1. Standard of Review

         ¶ 31 Sandstead does not challenge historical facts found by the district court.[8] Rather, she challenges the court's application of the law to those facts. Her arguments present issues of statutory interpretation, which we review de novo. Oldham v. Pedrie, 2015 COA 95, ¶ 9. When interpreting statutes, we give effect to the General Assembly's intent. Id. (citing Jefferson Cty. Bd. of Equalization v. Gerganoff, 241 P.3d 932, 935 (Colo. 2010)). To determine the General Assembly's intent, we consider the context of the statute as a whole and look to the statute's plain language, giving that language its commonly understood meaning. Id.; accord Farmers Grp., Inc. v. Williams, 805 P.2d 419, 422 (Colo. 1991).

         2. Multi-Party Bank Accounts

         ¶ 32 Part 5 of article 10 of the Probate Code gives a court authority to take actions with respect to certain "fiduciaries" over which it has acquired jurisdiction to protect the interests of those as to whom fiduciaries owe their duties. As immediately relevant, the court may surcharge a PR - that is, order a PR to reimburse the estate - for mismanagement of an estate. See §§ 15-10-501(2)(c), (3), -504(2), C.R.S. 2015. An "estate" means, again as relevant here, "the estate of a decedent." § 15-10-501(2)(b). "Estate" is further defined as "the property of the decedent." § 15-10-201(17), C.R.S. 2015. In delineating the court's powers to oversee and sanction a PR, part 5 repeatedly phrases that power in terms of actions with respect to estate property. §§ 15-10-501(2)(b), (c), (3); 15-10-502(1)(a); 15-10-503; 15-10-504(1)(a); 15-10-505(1)(a), C.R.S. 2015. We are convinced, therefore, that any proceeding to surcharge a PR of an estate must pertain to the PR's actions vis-à-vis estate property.

         ¶ 33 Sandstead contends that the district court should not have surcharged her for actions related to the farm sales proceeds, which were placed in joint bank accounts before Auriel's death, because that money was not estate property. We agree.

         ¶ 34 Sums in a joint bank account are non-probate property. "During the lifetime of all parties, an account belongs to the parties in proportion to the net contribution of each to the sums on deposit." § 15-15-211(2), C.R.S. 2015. But, upon one party's death, the money automatically passes by operation of law to the surviving parties on the account. § 15-15-212(1), C.R.S. 2015. "If two or more parties survive and none is the surviving spouse of the decedent, the amount to which the decedent . . . was beneficially entitled under section 15-15-211 belongs to the surviving parties in equal shares . . . ." Id. "Sums remaining on deposit at the death of a party to a multiple-party account . . . belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intention." § 15-15-212(5) (emphasis added). And "a transfer resulting from the application of section 15-15-212 is effective by reason of the terms of the account involved and this part 2 and is not testamentary or subject to articles 10 to 13 of this title (estate administration)." § 15-15-214, C.R.S. 2015 (emphasis added).

         ¶ 35 In re Estate of Beasley, 40 Colo.App. 347, 578 P.2d 662 (1978), is substantially on point. In that case the decedent established two savings accounts before her death in her name and those of her two daughters. The accounts were in joint tenancy, with rights of survivorship. The parties intended that upon the death of one of them, the others would receive the entire amount in the accounts. Shortly before the decedent died, one of the sisters withdrew substantially all of the funds in the accounts. After the decedent died, the other sister, who was the estate's PR, asserted a claim for half of the withdrawn funds on behalf of the estate. The district court awarded the estate half the funds, but a division of this court reversed. The division held that under the terms of the account the withdrawals were lawful, and that those withdrawals did not destroy the joint tenancy nature of the account. Accordingly, the estate had no claim to the funds. Id. at 348-49, 578 P.2d at 663.

         ¶ 36 In this case, it is undisputed (and the district court so found) that Auriel contributed all of the money in the Wells Fargo and Citizens Bank accounts, intending that the funds would go to Sandstead and Corona upon her death without going through probate. It is likewise undisputed that the transfer to the Citizens Bank accounts was made for the same purpose. By operation of law, during Auriel's lifetime, the money in the Wells Fargo account was hers, though both Sandstead and Corona could withdraw funds. Likewise, by operation of law, during Auriel's lifetime the money in the Citizens Bank accounts was hers, though Sandstead could withdraw funds. But upon Auriel's death, by operation of law, the money in the Wells Fargo account belonged to Sandstead and Corona in equal shares while the money in the Citizens Bank accounts belonged to Sandstead alone (subject to Corona's claim to one-half of the funds); the estate had no claim to the money. See § 15-15-212(1), (5); § 15-15-214; In re Estate of Beasley, 40 Colo.App. at 347-48, 578 P.2d at 663.[9] Thus, because there is not "clear and convincing evidence" that Auriel intended the money to be subject to probate (indeed, all evidence is to the contrary), see § 15-12-212(5), by law the money in the accounts was never property of Auriel's estate.

         ¶ 37 Taking a position Corona never asserted, the district court applied an exception to the rules governing multi-party accounts to conclude that the funds in the Citizens Bank accounts were estate property. Under section 15-15-202, C.R.S. 2015, the provisions of title 15, section 15 regarding multi-party accounts do not apply to "a fiduciary or trust account in which the relationship is established other than by the terms of the account." The district court determined that section 15-15-202 applied to Sandstead's account transfers because in transferring money from Wells Fargo to Citizens Bank, she created a type of trust account.[10] We disagree because there is no evidence the farm sale proceeds were placed in these accounts for any purpose other than to avoid probate; indeed, it is undisputed that the money was placed in these accounts precisely to avoid probate by operation of the rules governing multiparty accounts. Sandstead testified, without contradiction, that the money was transferred because she had had a falling out with a Wells Fargo employee and it would be easier to manage the funds where she lived. Sandstead and Corona agreed all along that the money was to be used for Auriel's care, and then split between them upon Auriel's death. However, this was not a strict or formal arrangement. While Auriel was still alive, the money was also used to pay for things like renovations to the Florida condominium (which had been deeded to the sisters) and travel expenses. There is simply no evidence the accounts were created or used as a fiduciary or trust accounts.

         ¶ 38 Apparently, the district court based its conclusion on the fact that Sandstead was Auriel's attorney-in-fact at the time of the transfer by virtue of the durable power of attorney.[11] But Sandstead did not use that authority or need to use that authority to make the transfer; her status as signatory was alone sufficient to allow her to do so.

         ¶ 39 The fact a person possesses a power of attorney to act for another person does not transform every action affecting the other person by the one in possession of such power into one pursuant to that power. The purpose of a durable power of attorney is obviously to allow the holder of that power to do things she otherwise would have no legal authority to do. And using such a power requires presenting the document creating it to establish one's authority to act. For instance, Sandstead testified that she had to "send [the] power of attorney to some of the billing companies to stop billing, or to make payments, or to close accounts" after her parents died. But Sandstead had legal authority to transfer the funds in the Wells Fargo account independent of the power of attorney, and there was no evidence that she acted pursuant to or presented the power of attorney for that purpose.

         ¶ 40 The district court also concluded that the Citizens Bank money was estate property because Sandstead had put some of the money in a Citizens Bank estate account in 2009 and had listed the amount in a Citizens Bank estate account in two estate inventory forms after opening formal probate in 2009. The district court said that Sandstead's "treatment of the Citizens' Bank Funds as estate property constituted a judicial admission that she did not claim them, individually."[12] Again, we disagree.

         ¶ 41 "A judicial admission is a formal, deliberate declaration which a party or his attorney makes in a judicial proceeding for the purpose of dispensing with proof of formal matters or of facts about which there is no real dispute." Kempter v. Hurd, 713 P.2d 1274, 1279 (Colo. 1986).

         ¶ 42 We conclude that there was no judicial admission, for three reasons. First, we are not persuaded that the context of Sandstead's actions shows an unequivocal, deliberate declaration that the farm sale proceeds were estate funds. See Gonzalez v. Windlan, 2014 COA 176, ¶¶ 45-46 (alleged judicial admission must be considered in context). Sandstead testified that she placed some of the farm sale proceeds in an estate account and showed them on estate inventory forms because of perhaps dubious legal advice that doing so would facilitate resolution of disputes over other property that did belong to the estate. There was no contrary evidence. She has at all times since they became an issue maintained that the farm sale proceeds were never estate funds.[13] And we note that because at all relevant times Sandstead and Corona believed themselves to be the sole heirs of Auriel's estate, disbursing the funds through probate would have the same effect as disbursing them outside probate - both would receive one-half of the funds. See Bd. of Cty. Comm'rs v. Rohrbach, 226 P.3d 1184, 1189 (Colo.App. 2009) (where property owners contested the zoning of their property in the litigation, statement in their use permit application that their property was zoned agricultural was not an unequivocal or formal declaration so as to constitute a judicial admission).

         ¶ 43 The partial dissent says, however, that Sandstead did not claim that the farm sale proceeds were not estate funds until July 2011. But the record shows that Sandstead took that position earlier when the status of the funds first appeared to be an issue. And the record shows that Sandstead continued to adhere to that position throughout litigation over her actions.

         ¶ 44 As noted, the motion for surcharge expressly challenged only actions Sandstead had taken as PR relating to estate property. Sandstead was not appointed PR until two years after she had transferred the money to Citizens Bank.

         ¶ 45 In her response to the motion for surcharge, filed March 2, 2011, Sandstead let it be known that she considered any dispute relating to spending farm sale proceeds to be off limits. The response stated: "Monies held in joint bank accounts due to the decedent putting that money into a joint bank account before her death deprives the probate court of jurisdiction to administer those funds or to adjudicate how those funds were spent."

         ¶ 46 Both Sandstead and Corona filed trial briefs on July 8, 2011, in advance of the hearing on the surcharge motion. In her trial brief, Sandstead again argued expressly that the farm sale proceeds transferred to Citizens Bank were not estate property because those funds were in "a joint bank account which passed to the survivor outside of the will."[14]

         ¶ 47 Corona's trial brief sought, for the first time, to challenge actions Sandstead took before her appointment as PR, and claimed that, as to all the money transferred to Citizens Bank, Sandstead had breached her fiduciary duties to Corona. The brief referred to three separate transfers: (1) a transfer of "$200, 000 from a bank account in Colorado that was jointly owned by [Auriel], [Sandstead], and [Corona] to accounts in Massachusetts" on "June 20, 2007"; (2) a transfer of "$10, 000" on "August 2, 2007"; and (3) a transfer of "$20, 000" on "November 19, 2007." Corona's brief did not allege expressly that the money in the Citizens Bank accounts was estate property, nor did it allege expressly that Sandstead had breached any duty to Auriel or the estate with respect to that money. It did allege that Sandstead had breached her fiduciary duties to Corona "with [r]espect to [f]unds [c]ontrolled by [Sandstead] as well as [e]state [p]roperty, " placing the farm sale proceeds in the former category by then alleging that Sandstead controlled those proceeds "which [Sandstead] held for the benefit of them both."

         ¶ 48 It was in response to Corona's new allegations that Sandstead filed her motion in limine three days later. [15] She expressly moved "to prohibit the introduction of evidence regarding" all three transfers mentioned in Corona's trial brief, including "$200, 000 transferred from a jointly owned bank account on June 20, 2007, while the Decedent was still alive . . . ." The motion argued that the court lacked jurisdiction to resolve disputes over those ...

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