Opinion
Court of Appeals No. 22CA1393
09-28-2023
In the MATTER OF KATHERINE E. REECE TRUST, BOKF, N.A., Trustee, Petitioner-Appellee, and Alexander J. Frascona and Monica J. Frascona, Appellees, v. Katherine E. Reece, Appellant.
Goodspeed Menili, Leia G. Ursery, Englewood, Colorado, for Plaintiff-Appellee BOKF, N.A., Trustee Lathrop GPM LLP, Thomas A. Rodriguez, Denver, Colorado, for Appellees Alexander J. Frascona and Monica J. Frascona Hogan Omidi, P.C., John R. Vranesic, Denver, Colorado, for Appellant
City and County of Denver Probate Court No. 21PR30546, Honorable Elizabeth D. Leith, Judge
Goodspeed Menili, Leia G. Ursery, Englewood, Colorado, for Plaintiff-Appellee BOKF, N.A., Trustee
Lathrop GPM LLP, Thomas A. Rodriguez, Denver, Colorado, for Appellees Alexander J. Frascona and Monica J. Frascona
Hogan Omidi, P.C., John R. Vranesic, Denver, Colorado, for Appellant
Opinion by JUDGE KUHN
¶ 1 Katherine E. Reece, a beneficiary of the eponymous testamentary trust created by her late spouse, Oliver E. Frascona—from whom she was legally separated at the time of his death—appeals the probate court’s order measuring her standard of living for distributions from the trust at the time of Frascona’s death and including the period of their legal separation immediately before Frascona’s death. We hold that section 50, comment d(2), of the Restatement (Third) of Trusts (Am. L. Inst. 2003) provides the appropriate measure to determine the standard of living under the facts of this case. That comment says that the standard of living for purposes of support and maintenance "is ordinarily that enjoyed by the beneficiary at the time of the settlor’s death or at the time an irrevocable trust is created." We conclude that the probate court properly applied this standard, and we affirm.
I. Background
¶ 2 Reece and Frascona married in 2004. Before marrying, they entered into a marital agreement addressing their rights and obligations with respect to marital and nonmarital assets.
¶ 3 In 2011, Frascona executed his last will and testament. Under the will, Frascona established the Katherine E. Reece Trust with his residuary estate. Reece is a beneficiary of the trust, as are Frascona’s two children from his first marriage—appellees Alexander J. Frascona and Monica J. Frascona.
¶ 4 The trust is administered in accordance with article four of the will, which contains relevant standards for distributions from the trust. Article 4.2 says that the
trustee may distribute so much of the income and principal of the … [t]rust to or for the benefit of one or more persons within a class consisting of my spouse and my descendants in such proportions and in such amounts as [the] trustee in its discretion may determine to be necessary or advisable for their health, education, support and maintenance; provided, however, that in exercising its discretion [the] trustee shall give primary consideration to the needs of my spouse and secondary consideration to the needs of my descendants
….
As pertinent here, article 4.3 further says that
[w]ithout in any way limiting or expanding the discretion of [the] trustee over distributions of income and principal, I suggest to [the] trustee that the primary purposes [of the trust] are to provide for my spouse’s support, having regard for my spouse’s other means of support and the standard of living enjoyed by my spouse during our marriage …. In the exercise of its discretion hereunder, [the] trustee shall consider all circumstances relevant to the administration of the trust, including:
(a) financial and other resources of the beneficiary(ies) which are outside the trust and are known to or are readily ascertainable by the trustee; and (b) if applicable, the refusal by a beneficiary to provide the requested information.
(Emphasis added.) Then article 4.4 articulates Reece’s rights with respect to her and Frascona’s family residence. The provision, in relevant part, says that
[w]ith regard to our family residence, being the property in which we reside at the time of my death, it is my intention to enable [Reece] to remain in the home for so long as she desires …. In no event shall [Reece] be obligated to contribute to rent, mortgage or trust deed payments, property taxes, assessments, insurance, maintenance, or repairs for so long as any funds remain in the [t]rust.
¶ 5 Frascona separated from Reece approximately nine years after marrying and two years after executing the will containing the trust. On June 8, 2013, Frascona and Reece executed a separation agreement. Under its terms, Reece agreed to move out of the family residence on or before July 31, 2013. Frascona also agreed to pay more than $77,000 in spousal support to Reece over a two-year period. Of that amount, approximately $29,000 would be paid in two lumpsum installments. The remaining amount would be paid in fourteen monthly installments of $3,450, due between July 2013 and August 2014. Frascona also agreed not to convert the decree of legal separation into a decree of dissolution of marriage before September 1, 2014. By extending the marriage to a minimum of ten years, Reece would become eligible for social security benefits. And finally, the separation agreement provided that Reece would remain a trust beneficiary until the decree of dissolution of marriage had been entered.
¶ 6 The domestic relations court made the agreement a temporary order on June 26, 2013. It then incorporated the agreement into the court’s decree of legal separation on September 11, 2013.
¶ 7 Frascona died in an airplane crash on August 31, 2014, just one day before he could first seek dissolution of the marriage. Consequently, Reece and Frascona were still married at the time of his death, despite being legally separated and having lived apart for over a year.
¶ 8 In 2015, after Frascona’s will was admitted to probate in Weld County, the personal representative of his estate filed a petition asking the district court to provide instructions on the impact of the separation agreement on Reece’s right to inherit under the will. In early 2017, the district court ruled that, although the marriage had not been terminated at the time of Frascona’s death, Reece had waived her right to inherit under the terms of the separation agreement. Reece appealed and a division of our court held that, by entering into the separation agreement, Reece had not waived her rights to receive benefits under Frascona’s will and the accompanying trust. In re Estate of Frascona, 2017 WL 5196349 (Colo. App. No. 17CA0340, Nov. 9, 2017) (not published pursuant to C.A.R. 35(e)). The division reversed the district court’s order and remanded the matter for further proceedings.
¶ 9 On remand, the originally named trustees refused to accept appointment as trustees. Reece and Frascona’s children agreed to appoint appellee BOKF, N.A. as the successor trustee. In late 2020, BOKF accepted the appointment on the condition that it be permitted to file a petition for instructions concerning the trust’s interpretation and administration. BOKF filed a petition with the Denver Probate Court asking for instructions on interpreting the trust’s standard-of-living provision. Specifically, BOKF asked for instructions on
(a) how to measure "the standard of living enjoyed by Ms. Reece during our marriage" as set forth in Paragraph 4.3 of the Will;
(b) whether or to what extent Ms. Reece must consume her own resources prior to receiving distributions from the Reece Trust; and
(c) the extent and nature of circumstances to be considered by the trustee in exercising its discretion.
¶ 10 In July 2022, the probate court issued a written order on the petition after hearing the parties’ oral arguments. The probate court determined that the trust was a testamentary trust that became irrevocable at Frascona’s death. The court found that Reece’s standard of living at the time of Frascona’s death, including during the period of separation, was the applicable standard for the trust administration. Reece appeals the probate court’s order.
II. Analysis
¶ 11 Reece challenges the probate court’s order on two separate—but inextricably linked—grounds. First, Reece contends that the probate court erred by limiting the standard of living she enjoyed "during [her] marriage" to only the time between the beginning of the legal separation (June 8, 2013) and Frascona’s death (August 31, 2014). By doing that, Reece’s second contention proceeds, the probate court misconstrued Frascona’s intent and effectively rewrote the trust. We disagree with both contentions.
Reece does not challenge the probate court’s instructions on whether she must consume her resources before seeking distributions or the nature and extent of BOKF’s discretion. We therefore deem any challenge to those rulings abandoned. See Armed Forces Bank, N.A. v. Hicks, 2014 COA 74, ¶ 38, 365 P.3d 378.
A. Standard of Review
[1–3] ¶12 The interpretation of a trust is a question of law that we review de novo. In re Mendy Brockman Disability Tr., 2022 COA 75, ¶ 14, 519 P.3d 373. Our objective in construing the trust is to determine the intent of the settlor. Denver Found. v. Wells Fargo Bank, N.A., 163 P.3d 1116, 1122 (Colo. 2007). The settlor’s intent is ascertained from the entire trust instrument, considering the relevant circumstances and the settlor’s reasonable expectations in effect at the time the instrument was executed. In re Tr. Created by Belgard, 829 P.2d 457, 459 (Colo. App. 1991).
B. Reece’s Standard of Living Includes the Period of Legal Separation
[4] ¶ 13 We first address Reece’s contention that no consideration should be given to the period of legal separation in determining the standard of living she enjoyed during her marriage to Frascona. We reject this contention.
¶ 14 Under section 15-11-804(2)(a), C.R.S. 2023, a decree of dissolution of marriage revokes a spouse’s right to receive benefits from a revocable trust that was created by her ex-spouse. However, no such revocation occurs when the spouses have merely separated from each other. That is because a decree of legal separation does not terminate a marriage. § 15-11-804(1)(b). Rather, for a marriage to terminate, one of the spouses must move the court to convert the decree of legal separation into a decree of dissolution of marriage, and the court must do so. § 14-10-120(2), C.R.S. 2023.
¶ 15 Under the provisions governing the trust, Reece’s standard of living is measured by the standard she enjoyed "during [her] marriage" to Frascona. Because the marriage was not terminated until Frascona’s death, the legal separation period was part of their marriage. Therefore, the period of legal separation must be considered as part of the marriage in measuring Reece’s standard of living.
C. No Error in Measuring Reece’s Standard of Living by Only Considering the Period of Legal Separation
[5] ¶ 16 Reece argues that the probate court erred by measuring her standard of living from the date of the legal separation to the date of Frascona’s death. Instead, Reece argues, the probate court should have ascertained her standard of living by looking at her income and expenses for the three years immediately preceding the legal separation. We don’t perceive an error under the facts of this case.
[6] ¶ 17 It’s true that a court must construe a testator’s intent in light of the circumstances present when the will was executed. In re Estate of Daigle, 642 P.2d 527, 528 (Colo. App. 1982). But that principle alone doesn’t answer the question in this case.
¶ 18 Reece argues that her standard of living should be assessed by looking solely at her finances in the three or four years before separating from Frascona. Everything after the separation, she further asserts, is irrelevant in interpreting the trust’s standard-of-living provision in article 4.3 of the will. In making this argument, Reece relies on In re Estate of McCart, 847 P.2d 184 (Colo. App. 1992), where a division of this court approved using the average of the parties’ income and expenses from the time the trust was created until the time of the settlor’s death to arrive at the standard of living. But the division didn’t hold that this is the only way to determine standard of living. And there’s no indication that there had been any change in the standard of living during the three-year period in that case. Rather, the division concluded that the tidal court didn’t err by using a three-year average as a measure of the standard of living. Id at 187.
¶ 19 Moreover, McCart isn’t directly applicable here. As the probate court repeatedly noted in this case, the standard of living had recently changed. The parties had entered into a separation agreement, had ceased living together, had carefully limited their shared support, and were in the process of dissolving their marriage. While we agree with the division of our court that decided In re Estate of Frascona that Reece is entitled to take under the will, we also agree with the probate court that it couldn’t ignore the reality of the parties’ financial position at the time of Frascona’s death.
¶ 20 In resolving the appropriate measure of Reece’s standard of living, the probate court relied on section 50 of the Restatement (Third) of Trusts. A comment to that section says that "[t]he accustomed manner of living for … purposes [of support and maintenance] is ordinarily that enjoyed by the beneficiary at the time of the settlor’s death or at the time an irrevocable trust is created." Restatement (Third) of Trs. § 50 cmt. d(2). And because the trust was not established— and did not become irrevocable—until Frascona’s death, the court concluded that Reece’s standard of living was her income and expenses at the time of Frascona’s death, including the period of them legal separation. We perceive no error in this analysis under these facts.
[7, 8] ¶ 21 "While not binding on Colorado courts, ‘the restatements generally provide concise summaries of the law in a certain subject matter and can be persuasive authority.’ " Moore v. W. Forge Corp., 192 P.3d 427, 432 (Colo. App. 2007) (quoting AE, Inc. v. Goodyear Tire & Rubber Co., 168 P.3d 507, 509 n.1 (Colo. 2007)). And while we may not adopt a restatement in the legislative sense, we may apply sections of the restatements as a formulation of the law applicable to the issue before us. Grease Monkey Int’l, Inc. v. Montoya, 904 P.2d 468, 470 n.2 (Colo. 1995).
¶ 22 We have not found a Colorado case applying section 50 in measuring a beneficiary’s standard of living. And although courts in other states have applied section 50, we have found no case applying the rule to measure the beneficiary’s standard of living in the same context as this case. See O'Riley v. U.S. Bank, N.A., 412 S.W.3d 400, 408–10 (Mo. Ct. App. 2013) (applying the rule in ascertaining the expenses for the beneficiary’s support and maintenance); In re Ralph A Siddell Living Tr., Nos. 359991, 362535, 2023 WL 3397675, at *8 (Mich. Ct. App. May 11, 2023) (per curiam) (unpublished opinion) (applying the rule in determining that the measure of the beneficiary’s standard of living is implied from the "support and maintenance" provision in the trust); Gwinn v. Gwinn, 2016 IL App (2d) 150851, ¶ 21, 2016 WL 3443927 (applying the rule in concluding that support and maintenance expenses don’t include the beneficiary’s extraordinary gifts to a third party).
¶ 23 Nonetheless, we hold that the Restatement’s rule is appropriate to determine Reece’s standard of living under the circumstances of this case. Under that rule, the standard of living is measured at the time of Frascona’s death, which is also the time when the trust became irrevocable. See In re Estate of McCreath, 240 P.3d 413, 418 (Colo. App. 2009) (stating that a will does not become operative until the testator’s death). We recognize that the term "during our marriage" isn’t limited to the last fourteen months of Reece and Frascona’s marriage. But this period best represents Reece’s standard of living, considering the nature of the trust and the status of the marriage at the time of Frascona’s death.
¶ 24 The application of this rule also accounts for the realities of Reece and Frascona’s marriage when the trust became irrevocable. At Frascona’s death, the parties had been legally separated for over a year and were no longer living together. And although Reece was receiving spousal support payments, she did not have access to the combined marital earnings and was largely responsible for her own living expenses. These facts, which are not in dispute, all suggest that Reece had a markedly different standard of living during the separation than earlier in the marriage.
¶ 25 For these reasons, we conclude that the probate court did not err by concluding that "Reece’s standard of living and her expenses incurred as of [Frascona]’s death and during the period of … Reece’s separation from [Frascona] leading up to [Frascona]’s death shall apply as the measurement under Paragraph 4.3 of the Will."
Finding no error in the probate court's interpretation of the standard-of-living provision, we also reject Reece’s contention that the court misinterpreted the trust.
¶ 26 We also emphasize an important point the probate court made in its order. The standard of living is only one factor for BOKF to consider in evaluating a distribution request. Ultimately, the trust vests the trustee with discretion to determine what is necessary or advisable for Reece’s health, education, support, and maintenance, including consideration of her standard of living. The trust’s primary purpose is to provide for Reece’s support, and the trustee is to consider all circumstances relevant to administration, including her finances and other resources. As the Restatement notes, "The distributions appropriate to [the standard of living at the time of death] not only increase to compensate for inflation but also may increase to meet subsequent increases in the beneficiary’s needs resulting, for example, from deteriorating health or from added burdens appropriately assumed for the needs of another." Restatement (Third) of Trs. § 50 cmt. d(2). And as the probate court noted, these are all factors BOKF must consider in reviewing a distribution request.
III. Disposition
¶ 27 The order is affirmed.
JUDGE FOX and JUDGE WELLING concur.