of Treviño , 2020 COA 125 ( 2020 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
August 20, 2020
2020COA125
No. 19CA0199, Estate of Treviño — Nonprobate Transfers on
Death — Accounts and Transfers Nontestmentary — Payable on
Death Accounts
A division of the court of appeals considers to what extent a
decedent’s payable on death account was subject to the authority of
his personal representative, when the decedent had pledged the
account as collateral for a loan. The division holds that the
personal representative had authority over only the funds in the
account necessary to pay the loan in full. As to the amount over
which a personal representative has authority, a personal
representative owes fiduciary duties to the beneficiary of the
account.
Applying these principles, the division concludes that Gerardo
Treviño’s personal representative violated her fiduciary duties of
good faith and impartiality when she paid a loan solely from funds
in Treviño’s POD account.
COLORADO COURT OF APPEALS 2020COA125
Court of Appeals No. 19CA0199
Fremont County District Court No. 17PR30084
Honorable Stephen A. Groome, Judge
In re the Estate of Gerardo Treviño, deceased.
Esteban Treviño,
Appellant,
v.
Victoria Treviño, in her capacity as Personal Representative,
Appellee.
ORDER AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division VII
Opinion by JUDGE BERGER
Fox and Lipinsky, JJ., concur
Announced August 20, 2020
Holder & Associates, PC, Michael D. Holder, J. David Taunton, Colorado
Springs, Colorado, for Petitioner-Appellant
No Appearance for Appellee
Brown & Crona, LLC, Spencer J. Crona, Denver, Colorado, for Amicus Curiae
Colorado Bar Association Amicus Brief Committee
¶1 The principal question in this case is whether and to what
extent Gerardo “Jerry” Treviño’s payable on death (POD) certificate
of deposit account (the account) was subject to the authority of his
personal representative on Jerry’s death. Usually, POD accounts
automatically pass under Colorado law to the named beneficiary
and do not become part of the probate estate or subject to the
authority of the decedent’s personal representative. § 15-15-214,
C.R.S. 2019.
¶2 Here, however, Jerry pledged the POD account as collateral for
a loan and, under the terms of the pledge agreement Jerry signed,
no beneficiary or personal representative had the right to receive
“any rights in the Collateral in the event of Debtor’s death or
incapacity until the obligations secured hereby are paid in full.”
Jerry and his wife, Victoria Treviño, were jointly and severally liable
on the loan.
¶3 When Jerry died, the amount in the account exceeded the
amount secured by the pledge agreement. We hold that appellee,
Victoria Treviño, as personal representative of Jerry’s estate, held
authority over only those funds in the account necessary to pay the
loan in full, but held no authority over the remaining funds. As to
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the amount over which she had authority as personal
representative, she owed statutory duties of good faith and
impartiality to the beneficiary of the account. She violated these
duties when she paid the loan solely from funds in the account
without first paying down the loan from other liquid assets of the
estate.
¶4 Victoria’s actions harmed the beneficiary of the account
because she paid an outstanding debt from monies to which the
beneficiary was legally entitled, rather than using other liquid estate
assets available for that purpose.
¶5 We thus partially reverse the trial court’s order that Victoria
did not violate her fiduciary duties, and remand for further
proceedings consistent with this opinion.
I. Relevant Facts and Procedural History
¶6 The account Jerry opened was payable on death to his son,
Esteban “Tony” Treviño, the appellant. Later, Jerry and his wife,
Victoria, obtained an $80,000 secured loan from Wells Fargo Bank.
Jerry and Victoria were jointly and severally liable on the loan, for
which Jerry pledged the account as collateral. Victoria never had
any rights in the account. The pledge agreement provided “that no
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joint owner, beneficiary, surviving spouse or representative of
Debtor’s estate gets any rights in [the account] in the event of
Debtor’s death or incapacity until the obligations secured hereby
are paid in full.”
¶7 In a separate transaction, Jerry and Victoria sold residential
real property in Texas on an installment loan basis to a family
member. Victoria testified that the monthly loan payments from the
sale of the Texas property were used to pay down the Wells Fargo
loan before Jerry’s death and that the payments on the real
property sale were roughly equivalent to the periodic payments due
to Wells Fargo.
¶8 Jerry’s will designated Victoria as his personal representative,
and she assumed that role on Jerry’s death. In her capacity as
personal representative, Victoria, through her attorneys, sent a
letter to Wells Fargo directing it to use the account to pay the
$77,212.03 balance on the loan and to distribute the remaining
$27,246.52 in the account to Tony, as POD beneficiary. The estate
(and then Victoria, as the residual beneficiary of Jerry’s estate)
continued to receive monthly payments from the sale of the Texas
property after Jerry’s death.
3
¶9 About a year after Jerry’s death, Tony filed a petition asserting
that Jerry’s will was invalid based on Victoria’s alleged undue
influence. Later, Tony claimed that Victoria had misused the
account and breached her fiduciary duties when her lawyer directed
Wells Fargo to use the account to pay the Wells Fargo loan in full.1
Tony sought a surcharge judgment of $71,711.81 plus interest.2
¶ 10 In a written order, the trial court rejected Tony’s challenge to
the will, finding that Tony did not meet his burden of proving undue
influence. Tony does not appeal this part of the court’s order. The
trial court also rejected Tony’s claim that Victoria breached her
fiduciary duties in using the account to pay Jerry’s debt to Wells
1 Victoria testified at the trial that she never directed Wells Fargo to
do anything and that the decision to use the account to pay the
loan was made entirely by Wells Fargo. This contention is
conclusively disproved by the letter Victoria’s lawyer sent to Wells
Fargo, which said, “[o]n Ms. Treviño’s behalf, we request that Wells
Fargo release the funds in the CD account to pay off the personal
loan in full, and then distribute any remaining funds to [Tony].”
While Victoria consistently alleged that Wells Fargo acted of its own
accord in using the account, she never contested the authenticity of
the letter.
2 The trial court stated in its order that “[Tony] contends that
[Victoria] breached her duty by authorizing Wells Fargo to use
$71,711.81 of the proceeds of [the account] to pay off the personal
loan rather than using assets of the estate to do so.” But later, the
court found that the balance due on the loan was $77,212.03. This
discrepancy does not affect our analysis.
4
Fargo. The court found that Victoria acted reasonably in directing
Wells Fargo to use the account because the estate did not otherwise
have the ability to pay the loan. Specifically, the court found that
the gross value of the estate was $69,516.61, with only $2415.61 in
liquid assets.
¶ 11 The court also noted that there was “a question whether
Tony’s ‘claim’ against the [personal representative] was timely filed”
because Tony made the claim several months after the statutory
expiration for creditor claims against the estate under section 15-
12-803, C.R.S. 2019. The court did not decide that question
because it ruled against Tony on the merits.
¶ 12 Tony appeals.3
II. Analysis
¶ 13 We review the trial court’s legal conclusions de novo but defer
to the court’s findings of fact when they are supported by the
record. In re Estate of Owens, 2017 COA 53, ¶ 19. Whether an
3 Victoria has not entered an appearance in this court. At our
invitation, the Colorado Bar Association filed an amicus brief in this
case. We express our appreciation to the Bar Association and to
the authors of the amicus brief in helping us decide this case.
5
asset is part of a decedent’s estate is a question of law that we
review de novo. Sandstead-Corona v. Sandstead, 2018 CO 26, ¶ 69.
¶ 14 Loan pledge agreements are contracts, see Amos v. Aspen Alps
123, LLC, 298 P.3d 940, 959 (Colo. App. 2010), aff’d in part and
rev’d in part, 2012 CO 46, and we review de novo questions of
contract interpretation. Ad Two, Inc. v. City & Cty. of Denver, 9 P.3d
373, 376 (Colo. 2001). “[A] court must give effect to the plain and
ordinary meaning of [a contract’s] terms.” Emenyonu v. State Farm
Fire & Cas. Co., 885 P.2d 320, 323 (Colo. App. 1994).
A. Payable on Death Accounts
¶ 15 POD designations are authorized by statute. § 15-15-203(1),
C.R.S. 2019. Section 15-15-201(8), C.R.S. 2019, defines “POD
designation,” in pertinent part, as “the designation . . . in an
account payable on request to one party during the party’s lifetime
and on the party’s death to one or more beneficiaries . . . .”
¶ 16 A POD account is not ordinarily an asset of the estate or
subject to probate because, by operation of law, at the instant of the
account owner’s death, the named beneficiary becomes the owner of
the account. §§ 15-15-212, -214, C.R.S. 2019; In re Estate of
Owens, ¶ 11. Thus, ordinarily a personal representative would not
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have authority over a POD account because it never becomes an
asset of the probate estate.4 Indeed, section 15-15-214 expressly
provides that POD accounts are nontestamentary and not subject to
estate administration. See also § 15-15-101(1), C.R.S. 2019
(defining nonprobate transfers on death).
¶ 17 Tony argues that the account, though encumbered by and
subject to the terms of the pledge agreement, became his property
when Jerry died. Thus, he argues that Victoria never had authority
over the account because it was never part of the estate.
¶ 18 Under the plain language of the pledge agreement, however, no
beneficiary or personal representative “gets any rights in the
Collateral . . . until the obligations secured hereby are paid in full.”5
(Emphasis added.) This leaves the question of who gained authority
over the account when Jerry died.
4 In defined circumstances, a nonprobate asset may be used to
satisfy an estate debt under section 15-15-103(8), C.R.S. 2019, but
the necessary conditions are not present in this case, and no party
has claimed that this section applies.
5 “It is a presumption of law that the parties to a contract bind not
only themselves but their personal representatives.” Colo. Nat’l
Bank of Denver v. Friedman, 846 P.2d 159, 170 (Colo. 1993)
(quoting United States ex rel. Wilhelm v. Chain, 300 U.S. 31, 34
(1937)).
7
¶ 19 Neither Colorado case law nor statutes address a personal
representative’s authority over a POD account that is subject to a
pledge agreement. Outside Colorado, authority on this topic is
sparse. In Oklahoma, by statute, a POD beneficiary is entitled to
the funds in a POD account only “after payment of account
proceeds to any secured party with a valid security interest in the
account.” Tinker Fed. Credit Union v. Grant, 391 P.3d 766, 770
(Okla. Civ. App. 2016) (quoting Okla. Stat. Ann. tit. 6, § 901(B)(2)
(West 2020)). But the Oklahoma court did not specifically address
authority over a POD account before satisfaction of the pledge.
¶ 20 Ohio takes a different approach: a beneficiary of a POD
account “receive[s] only an encumbered interest” in the account
upon the decedent’s death. Jamison v. Soc’y Nat’l Bank, 611
N.E.2d 307, 310 (Ohio 1993). The creditor, however, “has an
immediate right to satisfy the debt from the proceeds of the P.O.D.
C.D. without first seeking payment from the decedent’s estate, and
the beneficiary of the P.O.D. C.D. is entitled only to the surplus.”
Id. at 309; see also In re Estate of Gullett, 521 N.E.2d 14, 15-16
(Ohio Ct. C.P. 1987).
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¶ 21 We do not follow the Ohio approach because it could create a
situation in which a creditor uses a POD account to satisfy
obligations that should have been paid from the decedent’s estate.
At the same time, we see no justification for submitting an entire
POD account to the authority of a personal representative when
only a portion of the account is required to cover the amount owed
under the pledge agreement. And while the pledge agreement in
this case provided that neither the account’s beneficiary nor the
representative of the decedent’s estate would have any interest in
the account until the pledge agreement was satisfied, someone
must have the authority to decide the extent to which the account
should be used to cover the pledge agreement.
¶ 22 The personal representative, owing fiduciary duties to the
named beneficiary (as discussed below) and governed by probate
law, sits in the best position to do so. Accordingly, we conclude
that, when a POD account is subject to a pledge agreement, and the
account holder dies, the account holder’s personal representative
has authority over the account only as to the amount secured by
the pledge agreement.
9
¶ 23 Applying these principles here, Victoria had authority over
$77,212.03 in the account — the remaining balance of the Wells
Fargo loan. She had no authority over the remaining $27,246.52 in
the account. This does not mean that Tony’s rights as POD
beneficiary were eliminated as to the $77,212.03 under Victoria’s
authority. Applying the plain language of the pledge agreement,
when the Wells Fargo loan was paid in full, Tony’s rights as POD
beneficiary attached and entitled him to the remainder of the
account.
B. Duties of the Personal Representative
¶ 24 A personal representative is a fiduciary. § 15-1-802(3)(a)(I),
C.R.S. 2019. She has “a duty to act reasonably and equitably with
due regard for [her] obligations and responsibilities toward the
interests of beneficiaries and creditors, the estate or trust involved,
and the purposes thereof . . . .” § 15-1-804(1), C.R.S. 2019.
¶ 25 A personal representative must also use her authority “for the
best interests of successors to the estate” and must observe the
standards of care applicable to a trustee. § 15-12-703(1), C.R.S.
2019. The standards of care include the duty of good faith in the
administration of the estate; the duty of loyalty in favor of the
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interests of the beneficiaries; the duty of impartiality between
beneficiaries; and the duty of prudence in consideration of the
purposes, terms, distribution requirements, and other
circumstances of the estate. §§ 15-5-801 to -804, C.R.S. 2019.
These duties protect not only beneficiaries and creditors, but also
other “interested persons.” § 15-10-504(2), C.R.S. 2019. “If a
court, after a hearing, determines that a breach of fiduciary duty
has occurred . . . the court may surcharge the fiduciary for any
damage or loss to the estate, beneficiaries, or interested persons.”
Id. (emphasis added).
¶ 26 Additionally, “[a] personal representative has a duty to settle
and distribute the estate . . . as expeditiously and efficiently as is
consistent with the best interests of the estate,” § 15-12-703(1), and
“a duty to exercise diligent care in timely disposing of claims
presented to him or her.” In re Estate of Hall, 936 P.2d 592, 595
(Colo. App. 1996) (emphasis added), aff’d, 948 P.2d 539 (Colo.
1997); see also In re Estate of Ongaro, 973 P.2d 660, 662 (Colo.
App. 1998) (“The purpose of the Colorado Probate Code is to
promote a speedy and efficient system for settling the estate of the
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decedent and making distributions to his or her successors.”), aff’d,
998 P.2d 1097 (Colo. 2000).
¶ 27 With record support, the trial court found that “the estate did
not have the ability to pay off the Wells Fargo loan using estate
funds.” While it is true that the estate did not have sufficient liquid
assets to pay the entire loan, the estate was capable of paying part
of the loan from funds other than those in the POD account
because the court found (again, with record support) that the estate
had $2415.61 in unpledged liquid assets.6
¶ 28 As the personal representative of Jerry’s estate, Victoria had a
duty to exercise her powers in a neutral fashion and in the best
interests of all intended beneficiaries and interested persons. This
duty included the recognition of Tony’s unvested interest in the
portion of the account that was not needed to pay off the Wells
Fargo loan. § 15-10-504. Victoria’s actions violated this duty. By
paying the loan from an account in which Tony had an interest,
Victoria benefited herself — both as the only beneficiary of the rest
of the estate and as a co-obligor on the loan — to Tony’s detriment.
6Victoria presented no evidence that these funds were needed to
pay any other estate obligations.
12
To the extent there were liquid funds in the estate to pay the loan,
this use violated Victoria’s fiduciary duties to Tony.
¶ 29 But apart from Victoria’s failure to use the liquid assets, we
cannot conclude that Victoria breached her fiduciary duties.
¶ 30 Tony’s argument to the contrary is that the monthly payments
from the sale of the Texas property should have been used to pay
the loan. It is undisputed that the estate received monthly
payments from the sale of that property, and that those payments
were used to make loan payments while Jerry was alive. Tony
argues that Victoria should have continued to use this money to
pay down the loan, thereby preserving his interest in the account.
¶ 31 We reject this argument because using the monthly payments
would have indefinitely delayed the final settlement of Jerry’s estate
— including the distribution to Tony of any portion of the account
— and violated Victoria’s duty to timely resolve the estate’s debts.
In re Estate of Hall, 936 P.2d at 595. Under these circumstances,
like the trial court, we cannot conclude that Victoria would have
acted unreasonably or violated her fiduciary duties had she used
the account to discharge the Wells Fargo debt after having applied
the estate’s liquid assets to the debt.
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C. Further Proceedings
¶ 32 If a personal representative breaches a fiduciary duty, she is
subject to the surcharge provisions in section 15-10-504 and “is
liable to interested persons for damage or loss resulting from” the
breach. § 15-12-712, C.R.S. 2019. The surcharge statute states
that, if a court determines there was a breach of fiduciary duty, “the
court may surcharge the fiduciary for any damages or loss to the
estate, beneficiaries, or interested persons. Such damages may
include compensatory damages, interest, and attorney fees and
costs.” § 15-10-504(2)(a) (emphasis added).
¶ 33 Because we conclude that Victoria breached her fiduciary
duties to Tony by not applying the estate’s liquid assets to reduce
the amount due to Wells Fargo before paying the remaining balance
of the loan from the funds in the account, we remand to the trial
court to consider a surcharge judgment in the amount of the liquid
assets, and, if the court determines that it is appropriate, interest,
attorney fees, and costs.
¶ 34 But before doing so, the trial court must resolve the question
of whether Tony’s claim against Victoria was timely. The court
noted in its order that Tony’s claim “was filed several months after
14
the expiration in the notice to creditors,” but the court did not
resolve the issue. The court should consider whether the creditor
deadline applies at all, given the fact that Tony is not a creditor of
the estate, but rather, seeks a surcharge judgment against the
estate’s personal representative. The court should also consider
whether the claim was tried by implied consent under C.R.C.P.
15(b) because nothing in the record indicates that Victoria objected
on timeliness grounds, and she fully litigated the claim at the
hearing. And the court should consider whether Victoria waived
any statute of limitations affirmative defense by not timely raising it
below.
¶ 35 Finally, we express no opinion on whether Tony has a right to
contribution under section 13-50-103, C.R.S. 2019, or a common
law claim of unjust enrichment against Victoria in her personal
capacity.
III. Conclusion
¶ 36 The order is affirmed in part and reversed in part. The trial
court’s judgment that Victoria did not breach her fiduciary duty to
Tony is reversed to the extent of her nonuse of the liquid assets in
the estate — $2415.61 — and the case is remanded for the trial
15
court, subject to its determination regarding the timeliness of
Tony’s claim, to consider a surcharge judgment against Victoria and
in favor of Tony for that amount, plus statutory interest. Also on
remand, if the court enters a surcharge judgment, the court must
determine whether to award attorney fees and costs under
section 15-10-504(2)(a). In all other respects, the order is affirmed,
without prejudice to a claim by Tony in an appropriate action for
contribution under section 13-50-103 or a common law claim of
unjust enrichment.
JUDGE FOX and JUDGE LIPINSKY concur.
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