Official Government Website
Current Status of the Idaho Charitable Asset Protection Act by John S. McGown, Jr.
by John McGown, Jr.
Background
It has been four years since the Idaho Charitable Assets Protection Act (“ICAPA”) became effective on July 1, 2020. This article gives a brief summary of ICAPA and provides an update on its impact. For perspective, Idaho had over 4,500 charitable organizations holding over $8 billion in charitable assets in 2019.[i] Those figures have increased over the past few years, as Idaho charitable organizations held over $11.1 billion in charitable assets in 2022.[ii]
ICAPA and Its History
Persons regularly create charitable entities, many of which are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. There are significant federal income tax and estate tax incentives to using such entities.
An aspect of human nature is to take advantage of incentives. For some individuals, there is a temptation to “overindulge.” The Idaho Attorney General’s Office had almost no authority to monitor such overindulgence as a result of the 1938 Idaho Supreme Court decision of Hedin v. Westdala Lutheran Church.[iii] That limitation was significantly changed by the Idaho Legislature in 1963, which gave the Idaho Attorney General authority over charitable trust assets in conformity with the common law.[iv] The Attorney General felt that the tools under the 1963 law were insufficient as they did not provide the necessary tools, such as subpoenas or investigative demands, to conduct examinations of charitable entities.[v] Thus, Brett T. DeLange and Stephanie Guyon worked over several years to develop ICAPA and it was passed by the Idaho Legislature in 2020, effective July 1, 2020.
In very general terms, ICAPA prohibits a charitable organization or an accountable person from knowingly misusing charitable assets. It also imposes an obligation for a charity to notify the Idaho Attorney General at least 30 days before dissolving, converting to a noncharitable organization, terminating, or otherwise disposing of all or substantially all of the charitable organization’s charitable assets.[vii] The details of these reporting obligations are found on the Idaho Attorney General’s website by searching FAQ on ICAPA.[viii] In addition, Stephanie Guyon’s excellent article titled “The Idaho Charitable Assets Protection Act: Better Protection of Idaho’s Charitable Assets and Donor Intent” is a great resource. It can be found in the October 2020 issue of The Advocate on pages 38-40.[ix]
ICAPA Track Record
What is ICAPA’s track record over the four years since its enactment?[x] Let’s start with the number of charitable organizations that have provided prior written notification to the Idaho Attorney General of their intent to dissolve, convert to a noncharitable organization, terminate, or otherwise dispose of all or substantially all their charitable assets.
Of those 22 notifications, all were accepted as filed, five resulted in follow up by the Idaho Attorney General, zero resulted in an active investigation by the Attorney General, and zero resulted in action by the Attorney General, such as by providing an assurance of voluntary compliance, a consent judgment, or a lawsuit.
In addition, there were no investigations by the Idaho Attorney General in cases where there were not any notifications. While subjective, the notification requirement has some deterrence effect.
Observations
Due to their very nature, charities tend to be trusted by the general public. Oversight is often limited to a charity’s Board of Directors and key staff. The Internal Revenue Service historically has lacked the staff to do anything more than minimal audit coverage. These factors illustrate a need for ICAPA.
"In very general terms, ICAPA prohibits a charitable organization or an accountable person from knowingly misusing charitable assets."
On the other hand, most Idaho charities are not large and lack the skill set to even be aware of ICAPA requirements. Rather, their focus is on keeping their doors open to provide charitable services. If those doors are forced to close, ICAPA compliance may be the furthest thing from the charity’s mind. Noncompliance is easy to envision – with no one harmed. While legal assistance may be advisable, there may not be funds available to pay for such advice. One can envision the situation of a charity on its last legs and trying to wind up its operations by selling its heavily mortgaged offices. Then a few days before closing it learns of the 30-day notice that must be given to the Idaho Attorney General. While this is hopefully a rare occurrence, it illustrates how a well-meaning law can have (hopefully rare) undesirable consequences.
Conclusion
ICAPA is a well-intended statute. Many attorneys with little or no expertise serve as volunteer members on the Board of Directors of charitable entities, often with little, if any, knowledge of ICAPA. Both Stephanie Guyon’s October 2020 article in The Advocate and the FAQ on ICAPA listed on the Idaho Attorney General’s website can greatly increase that knowledge.
As to ICAPA’s impact on charitable fraud, early results are unclear. While waiting on additional data from future years will help in measuring such impact, the deterrence factor will be present, but almost impossible to measure.
John McGown, Jr.
John McGown, Jr. is Of Counsel to the Boise offices of Hawley Troxell Ennis & Hawley LLP, where he has worked since 1982. He has twice taught a graduate tax course on tax-exempt organizations at Boise State University and has lectured numerous times on the subject. John and his daughter, Brenna, are two of a handful of individuals who have reached the summits of both Mt. Borah and McGown Peak.
[i] Stephanie N. Guyon, The Idaho Charitable Assets Protection Act: Better Protection of Idaho’s Charitable Assets and Donor Intent, Advocate, Vol. 63, Issue 10 (October 2020), pp. 38–40.
[ii] See https://www.irs.gov/charities-non-profits/exempt-organizations-business-master-file-extract-eo-bmf, which offers per-state data on exempt organizations, as tabulated by the IRS (last visited April 30, 2024).
[iii] 59 Idaho 241, 80 P.2d 741 (1938).
[iv] See 1963 Idaho Legislative Laws 475 and Idaho Code § 67-1401.
[v] There were existing tools. At the state level, Idaho had (and has) statutes making theft a criminal offense. The Internal Revenue has both civil and criminal penalties applicable to Section 501(c)(3) entities.
[vi] See Idaho Code § 48-1906.
[vii] See Idaho Code § 48-1901, et. seq.
[viii] The search terms “Idaho attorney general ICAPA” should lead to the Idaho Code § 48-1907(1) Notice Form as well as Frequently Asked Questions dated June 17, 2020. See https://www.ag.idaho.gov/idaho-code-%C2%A7-48-19071-notice/; see also https://www.ag.idaho.gov/content/uploads/2020/05/ICAPA-Frequently-Asked-Questions.pdf.
[ix] Stephanie N. Guyon, The Idaho Charitable Assets Protection Act: Better Protection of Idaho’s Charitable Assets and Donor Intent, Advocate, Vol. 63, Issue 10 (October 2020), pp. 38–40.
[x] Because of submission deadlines, the period covered is from July 1, 2020, through April 30, 2024.
Why Use an Asset Protection Trust by Stephen H. Telford
by Stephen H. Telford
Occasionally in my practice, I am asked, “Why should I consider creating an asset protection trust?” The person posing this question frequently proceeds to tell me why such an asset protection planning technique is not for them. However, many of the objections I hear are based on misconceptions.
An asset protection trust is a legal structure designed to safeguard assets from various risks, ensuring they are protected and preserved for the intended beneficiaries. In today’s world, business and individual assets are coming under greater threat as aggressive attorneys assert new and creative legal equitable theories. The unpredictable nature of judges and juries has prompted the pursuit of alternative asset protection methods that offer greater predictability. In this article, I will focus on offshore asset protection trusts, which move assets to jurisdictions where they benefit from the protections offered by different, perfectly legal, frameworks.
I have written several articles highlighting the benefits of using a trust established in a jurisdiction outside the United States to safeguard assets. Here, I will address common misconceptions and explain why they are unfounded.
“I Will Lose Control of the Protected Assets”
An offshore asset protection trust puts the assets in the control of a designated trustee, who manages them according to the terms outlined in the trust document, shielding them from potential creditors or legal claims and providing an additional layer of security and confidentiality.
For this reason, it may be true that you will lose control of the protected assets when a trust is under attack from unexpected creditors. Ironically, your lack of control will be a major factor in keeping the protected assets out of the “grabbing hands” of unwanted creditors. The loss of control serves as a protective barrier against unwanted creditor actions, ensuring that the assets remain beyond their reach.
When assets are placed into the trust, legal ownership is transferred to the trustee, effectively removing them from direct ownership by the individual. This separation makes it more difficult for creditors to access the assets, as they are no longer considered part of the individual’s personal estate. Additionally, the trustee, who now has control over the assets, is typically located in a jurisdiction with favorable trust laws, such as the Cook Islands. Such jurisdictions have stringent asset protection statutes that make it challenging for creditors to seize trust assets and often have shorter statutes of limitations for creditors to pursue claims.
While the “waters are calm,” most offshore asset protection structures allow you to exert a great deal of control over the protected assets through an Idaho family limited liability limited partnership or an Idaho limited liability company. These entities offer a flexible and efficient means for individuals to maintain influence and decision-making authority over their assets while still benefiting from the protective features offered by offshore jurisdictions. An individual can act as the managing member or general partner of these entities, allowing the individual to retain control over the management and operation of the entity. For example, using an Idaho family limited liability limited partnership, family members can contribute assets to the partnership while maintaining control over their management. The partnership agreement can outline specific rules and procedures for managing the assets, including distributions, investments, and succession planning. This allows individuals to tailor the structure to their specific preferences and needs, enabling them to enjoy the benefits of asset protection while retaining a substantial degree of influence and autonomy over their financial affairs.
Additionally, a local or foreign protector can act as a “watchdog” for you and your family as beneficiaries of the trust. A local or foreign protector is an individual designated within a trust instrument to oversee or monitor the actions of the trustee and ensure that the trust is administered according to the settlor’s wishes. Such a protector can have significant veto powers over most of the key decisions made by the offshore trustee. Ultimately, the protector acts as a check against potential mismanagement, conflicts of interest, or any other adverse action that could impact the trust’s beneficiaries. While a local trustee can also be appointed to make decisions in conjunction with the offshore trustee, the existence of a local trustee could expose the trust assets to local creditors. It is critical to be able to timely remove the local trustee when any trust assets come under assault. Consequently, you may want to refrain from using this form of control.
“I Will Be Unable to Benefit from the Protected Assets”
While it may be true in most places in the United States that you cannot be the beneficiary of a trust that you create, it is not true in several other countries. For example, the Cook Islands in the South Pacific and Nevis in the Caribbean allow the trust creator to be a primary discretionary beneficiary of a trust.
Stateside, Alaska, Delaware, and Nevada have enacted legislation appearing to allow “rainy day” discretionary asset protection planning through the creation of domestic asset protection trusts (“DAPT”). However, the Full Faith and Credit Clause of the United States Constitution greatly restricts the actual asset protection they can provide unless you happen to be a resident of one of those states. The Full Faith and Credit Clause requires each state to recognize the public acts, records, and judicial proceedings of every other state.[1] Recent developments, including a ruling by the Alaska Supreme Court, have shown that DAPTs are no longer reliable options.[2] Essentially, even though Alaska, Delaware, and Nevada have enacted legislation allowing for the creation of DAPTs, residents of states that do not recognize DAPTs may not receive the intended protection. Courts in non-DAPT states can and will apply their own laws regarding fraudulent transfers, regardless of whether the assets are held in a DAPT-friendly state. In practical terms, this means that individuals relying solely on DAPTs for asset protection may not receive the level of protection they expect, particularly if they reside in states that do not recognize or enforce DAPTs.
There is no substitute for the type of protection offered in places like the Cook Islands or Nevis. By establishing trusts in these jurisdictions, individuals can benefit from stronger legal frameworks and a greater level of certainty in asset protection strategies.
“I Cannot Protect My Real Estate”
Obviously, your real estate, which is comprised of dirt and any improvements sitting on or in the dirt, cannot be “moved” offshore when a creditor is searching for assets to seize. However, your equity in such assets can be protected through strategic financial arrangements. One such method involves establishing a standing equity loan line of credit secured by a mortgage, deed of trust, or other similar debt instruments. This allows the loan proceeds to be transferred to the offshore trustee. If the protected real estate assets come under an attack and the loan proceeds must be sent to the offshore trustee for protection, the offshore trustee will make any debt payments coming due during the attack. The key to making this technique effective is to have the planning in place before an unwanted creditor appears on your doorstep with a claim to ensure the trust assets cannot be accessed.
"To ensure the integrity and effectiveness of a trust, it is crucial to strike the right balance between retaining some control for flexibility and allowing the trustee to exercise fiduciary responsibility."
“I Cannot Protect My Real Estate”
Obviously, your real estate, which is comprised of dirt and any improvements sitting on or in the dirt, cannot be “moved” offshore when a creditor is searching for assets to seize. However, your equity in such assets can be protected through strategic financial arrangements. One such method involves establishing a standing equity loan line of credit secured by a mortgage, deed of trust, or other similar debt instruments. This allows the loan proceeds to be transferred to the offshore trustee. If the protected real estate assets come under an attack and the loan proceeds must be sent to the offshore trustee for protection, the offshore trustee will make any debt payments coming due during the attack. The key to making this technique effective is to have the planning in place before an unwanted creditor appears on your doorstep with a claim to ensure the trust assets cannot be accessed.
“I Will Get in Trouble for Creating Such a Trust”
This statement holds true in situations where a trust is established to evade taxes that one is legally required to pay.
It may also apply when a trust is created after the emergence of a creditor’s claim and the assets transferred to the offshore trust leave the individual without enough local assets to fulfill their debts as they arise.
Finally, this statement may hold true if you retain too much control over the management of the trust. To ensure the integrity and effectiveness of a trust, it is crucial to strike the right balance between retaining some control for flexibility and allowing the trustee to exercise fiduciary responsibility. Properly structured trusts, with clear delineation of roles and responsibilities, can provide the desired level of protection and benefit for both the grantor and beneficiaries.
However, if you establish an offshore trust with your “nest egg” assets during stable financial times when you’re solvent, the United States Supreme Court has acknowledged your legal right to protect those assets.[3] Therefore, offshore asset protection planning is most effective when implemented proactively, before any unexpected claims or contingencies arise.
“I Do Not Want to Hide Assets”
Effective offshore asset protection planning hinges on transparency. This means being completely open with the IRS by filing the necessary tax forms each year. It also means providing truthful answers to any questions on financial documents or during legal proceedings, whether they’re civil, criminal, or bankruptcy related.
Contrary to popular belief, successful asset protection planning is not about hiding things; it is about choosing legally sound strategies in favorable jurisdictions. This approach has been common practice across the United States for years. For instance, some people opt to establish corporations in states like Delaware or Nevada to benefit from specific tort law limitations. Some individuals set up trusts to take advantage of asset protection laws in states such as Alaska and Nevada (even though the efficacy of such planning is highly suspect for the reasons discussed previously). And some people establish a homestead in Florida or Texas where the asset protection for such an asset is unlimited. In these states, individuals can establish a homestead – a primary residence – where the equity in the homestead is largely shielded from seizure or forced sale.
"Therefore, offshore asset protection planning is most effective when implemented proactively, before any unexpected claims or contingencies arise."
“My Existing Family Limited Partnership or Limited Liability Company Provides Adequate Protection”
This is probably the most dangerous misconception I hear. While it is true that such partnerships and limited liability companies can be a source of limited asset protection in Idaho when properly implemented and updated, decisions are appearing across the U.S. where these types of legal entities have come under attack.
It is prudent in Idaho to convert any existing family limited partnership to a limited liability limited partnership. Limited liability limited partnerships provide an additional layer of protection compared to traditional partnerships. By combining the benefits of limited liability for all partners with the flexibility and tax advantages of a partnership, limited liability limited partnerships offer greater assurance that individual partners will not be held personally liable for the debts or obligations of the partnership. This process is fairly simple to implement and is a proactive measure to mitigate risks and protect assets against potential creditor claims or litigation.
It may also be prudent to migrate any existing Idaho limited liability company to another jurisdiction where the charging order is the exclusive remedy for creditors trying to attack the structure from the outside. A charging order is a court-issued order that grants a creditor the right to receive distributions from the debtor’s interest in the limited liability company. It does not grant the creditor any control over the limited liability company or its operations. This limitation helps protect the company’s assets from direct seizure or liquidation by creditors.
There is no question in my mind that the strongest asset protection strategy will take advantage of such partnerships and limited liability companies in conjunction with an offshore trust. In fact, a limited liability company can be formed offshore in favorable jurisdictions where the charging order is the exclusive remedy for an outside attack, such as the Cook Islands and Nevis.
In today’s interconnected and rapidly evolving global landscape, individuals and businesses face a multitude of risks that threaten their financial security. From fraud and legal battles to market downturns and cyber threats, the importance of solid asset protection strategies cannot be overstated. Incorporating an offshore trust into your asset protection strategy can help alleviate these risks and offer a buffer against unexpected hurdles.
Considering incorporating an offshore trust into your asset protection strategy? If you possess assets you’d like to shield from potential creditors, it’s wise to seek guidance from a qualified and experienced advisor. In matters of asset protection, acting sooner rather than later is key to safeguarding your wealth.
Steve Telford
Stephen (Steve) H. Telford is an experienced attorney specializing in estate planning and asset protection in Nampa, Idaho. As the founder of Telford Law & AP Consultants, Steve is renowned for crafting tailored estate plans and asset protection structures. His approach prioritizes strength, security, and simplicity, ensuring his clients' peace of mind. Steve is also affiliated with the Offshore Institute.
[1] U.S. Const., art. IV, § 1.
[2] Jay Adkisson, Alaska Supreme Court Hammers Last Nail in DAPT Coffin For Use in Non-DAPT States In Toni 1 Trust, Forbes (Mar. 5, 2018), https://www.forbes.com/sites/jayadkisson/2018/03/05/alaska-supreme-court-hammers-last-nail-in-dapt-coffin-for-use-in-non-dapt-states-in-toni-1-trust/?sh=d4747d662a77.
[3] Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc., 527 U.S. 308, 323 n.6 (1999) (quoting Adler v. Fenton, 24 How. 407, 411-12, 16 L.Ed. 696 (1861)).
The Low-Income Tax Law Clinic by John B. Hinton
by John B. Hinton
I have the good fortune of directing the Low-Income Tax Law Clinic at the University of Idaho College of Law. The Tax Clinic is one of the College of Law’s clinical programs, where law students build practical skills while helping clients who cannot afford to hire a lawyer.
Students in the Tax Clinic help low-income clients with their tax problems. At first blush, the words “low-income” and “tax problems” may appear to be an unlikely combination – since some people might think “tax problems” affect mainly higher income taxpayers. However, many lower income individuals also have tax problems even if they do not ordinarily pay income tax.
The Clients
What types of clients does the Tax Clinic represent? Since the inception of the Tax Clinic in 2023, we have encountered clients with a diverse range of tax issues. Some of our clients are crime victims. For example, the taxpayer may have been a victim of fraud where the fraudster tricked the taxpayer into removing money from a retirement account, so the taxpayer not only loses money because of the fraud but is also taxed on the withdrawal. We have also had cases involving identity theft where someone else has reported income under the taxpayer’s social security number. The Internal Revenue Service (“IRS”) then mistakenly asserts a tax liability against the victim.
The IRS also audits many low-income taxpayers even though these folks do not pay taxes. Why? The IRS may doubt the validity of taxpayers’ claims for refunds. In some audits, the IRS may question whether the taxpayer improperly claimed a tax credit, such as the child tax credit or earned income credit. Taxpayers working as independent contractors are also frequently targets for audit, with the IRS questioning both the amount of income and deductions. In 2023, the IRS recommended $39.6 billion of tax adjustments due to audit examinations.[i] Taxpayers with annual income between $1 and $25,000 accounted for $18,589,000 of adjustments.[ii] Federal income tax audits often result in parallel adjustments for state income tax liabilities. The Tax Clinic can assist with state income tax issues which are ancillary to a federal tax issue.
Other clients simply struggle to pay an outstanding tax liability from a prior tax year and want to work out a settlement or installment payment arrangement. In some cases, the person has so little income that the IRS has agreed to forego collection.
The Students
Students who work in the Tax Clinic are third year students at the College of Law who are granted a limited license to practice under the supervision of a licensed attorney.[iii] The Tax Clinic gives them a chance to learn practical legal skills. Clinic students learn how to interview clients, draft engagement letters, consider ethical issues, research substantive legal issues, consider federal tax procedure and administrative rules, and come up with a solution. Sometimes this involves representation in the United States Tax Court or through the administrative processes of the IRS.
In addition to handling real legal issues presented by the clients themselves, students also study practical legal skills through class lectures. The Tax Clinic always welcomes other lawyers interested in sharing practical advice to students through guest lectures.
Finally, students learn legal practice and management skills and tips on how to succeed as a law firm associate, including tracking mock “billable hours” for all their client work.
How the Clinic Works
Clients who come to the clinic are assigned to work with one or more students. Once assigned, the students typically set up a meeting with the client and their supervising attorney. After meeting with the client, the students prepare an engagement letter to be signed by the client, and then commence performing the legal services needed.
All the clinic students get together in a weekly meeting to discuss the matters they are working on with each other and their supervising professor. The students thus learn from each other and are exposed to legal issues presented by matters other than their own. In this way the clinic operates much like a law firm or practice group that has collaborative meetings among colleagues.
The relationship between the students and their supervising professor is also similar to that of a law firm associate and a partner in the firm. All work is reviewed by the supervising professor before presenting it to the client. However, students in the clinic generally have more direct contact with clients than do many law firm associates.
Students who participate in the clinic benefit from the experiential learning approach. They leave the clinic much better prepared to be an associate in a law firm or enter a governmental law practice. Although these students have already developed the skills of reading cases and understanding the law at an intellectual level, the Tax Clinic, and the other clinics at the U of I give students a chance to apply this knowledge to provide practical solutions to help their clients. The clinical experience thus completes a well-rounded legal education.
John B. Hinton
John B. Hinton is the Director of the Low-Income Tax Law Clinic at the University of Idaho College of Law, where he has also taught Federal Income Taxation and Nonprofit Law.
Planning for Death, Brought to Life: Thoughts from a Professional Fiduciary by David C. Cooper
“…Texas authorities searched yesterday for the bodies of two of four people swept into the Pedernales River when they tried to cross on steppingstones. Two bodies were recovered Sunday.”[1]
by David C. Cooper
Why Do I Work as a Professional Fiduciary?
For most of my career, I have worked as a professional fiduciary in the context of trust and estate administration.
I was likely drawn to this area of practice based on personal experience at a young age. The newspaper article quotation above refers to my parents, oldest brother, and sister who perished in a drowning accident while I was in high school. At the time of the accident my father, George, was academic dean at the junior college in my hometown, and my mother, Wilma, taught sixth grade. Along with my sister, Leslie, we were visiting our oldest brother, Guy Cooper, who had just completed his first year of law school at the University of Texas. Our brother, Kevin, was not with us on the trip.
As teachers of modest financial standing, my parents were unlikely candidates to have created a trust at their passing. That said, life insurance proceeds funded a trust that protected assets for surviving children through age 21. My dad’s brother, Victor, served as trustee. Uncle Vic was a Baptist minister and WWII veteran – not a financial or legal professional. However, his caring service as trustee provided a solid foundation from which I was able to advance my education and professional career.
Throughout this article, I’ve included quotations in an attempt to add color to the specific topic being discussed. The following may describe how I felt after my family’s accident:
“I was bruised and battered
I couldn’t tell what I felt
I was unrecognizable to myself…”
Bruce Springsteen[2]
Perhaps our clients experience similar feelings after a significant loss.
What Is a Professional Fiduciary?
“Walk a mile in my shoes…”
Joe South[3]
A simple understanding of fiduciary might be to “walk in someone else’s shoes,” i.e., represent someone who is unable to represent themself.
The primary fiduciary roles I have engaged in include trustee, personal representative, conservator, and agent. Fiduciaries serve a very important function in the end-of-life spectrum of needs, which of course also includes estate planning and elder law attorneys, caregivers, and others. As a fiduciary, I am at the back end of the estate planning process, typically called on to serve when someone has passed away or experienced a situation of incompetency.
Core responsibilities of a professional fiduciary include understanding and integrating relevant law, property issues, and working with people.
The following are perspectives I have developed over the past 25 years as a professional fiduciary.
Consider Starting Basic When Describing the Roles of a Fiduciary
As noted, “fiduciary” is a broad term describing standing in the shoes of another person or entity, with the obligation to put the best interests of the other person or entity ahead of those of the fiduciary. Idaho Code § 63-3007 provides a statutory definition.[4]
The following is a very fundamental description of fiduciary roles. I typically receive positive feedback when I cover this with prospective clients.
Consider the Spectrum: An Estate Plan Is Only as Good as Its Implementation
“For all its uncertainty, we cannot flee the future.”
Barbara Jordan[v]
Creating an estate plan is only the beginning. Due consideration must also be given to investing in the administration, execution, and implementation of the plan.
The well-drafted estate plan is an investment that deserves to be implemented by a responsible individual (typically with ample professional assistance), or a professional fiduciary. While it is difficult to know which individuals will survive us and be willing to serve, it is not my contention that every plan needs a professional fiduciary. The able service of my Uncle Vic serves a great example of who an individual trustee may work successfully. That said, it is also an accurate observation that a professional fiduciary’s most consistent source of current business opportunities are trusts and estates where individuals were named as fiduciaries, and where neglect, errors, or malfeasance have occurred.
Where legal disputes arise between family members, the role of the independent fiduciary takes on even greater importance. Having the assets under the control of an independent third party allows interested parties to sort out legal disputes and/or vent long-held conflict without experiencing insecurity as to asset dissipation.
Retaining a Professional Fiduciary Should Be Viewed as a Risk-Transfer Decision
“Only put off until tomorrow what you are willing to die having left undone.”
Pablo Picasso[vi]
Think for a moment about all the types of insurance we pay for: homeowners, health, auto, malpractice, life, disability, long-term care, etc. Why do we invest in insurance?
Insurance is of course synonymous with “risk transfer.” The fundamental structure of insurance involves realizing a known loss – payment of a premium – to protect against the risk or possibility of a much larger loss. In the context of estate planning and administration, we don’t just seek to protect a large asset in the estate, we strive to protect the entire estate, as well as the specific disposition of trust or estate assets. Further, an efficient and accurate administration of a trust or estate can promote the goal of preserving family relationships.
Engaging the correct individual or professional fiduciary increases the likelihood of achieving all the goals of the well-crafted estate plan. As such, it is appropriate to view this as a straightforward risk transfer decision.
A professionally crafted plan deserves care and effective administration.
Fiduciary-Related Expenses Will Arise Whether a Professional or an Individual Is Serving as the Fiduciary
“Beware of little expenses. A small leak will sink a great ship.”
Benjamin Franklin[vii]
Because the duties of a fiduciary are so broad, it is almost inevitable that professional fees will be involved, even if a family member is willing to serve. Stand-alone investment management fees vary, but a reasonable estimate is 1% annual fees – just for management of financial securities. The individual serving as trustee will typically (and wisely) rely on legal advice in fulfillment of fiduciary duties. Further, expenses for retention of tax preparers, property managers, and other professionals, all may come into play.
Professional Fiduciaries with Limited Services Offerings
“Let our advance worrying become advance thinking and planning.”
Winston Churchill[viii]
Serving as a professional fiduciary is a challenging field involving multiple disciplines. Required areas of expertise include but are not limited to communication and people skills, administration, asset management (financial securities, real estate, entities, receivables, etc.), risk mitigation, taxation, operations, financial planning, marketing, and management.
The Limited Services Offering Fiduciary (“LSO Fiduciary”) represents a business model focused on providing only a portion of these services. In the LSO Fiduciary model, fundamental fiduciary duties may be shared with third parties, or outsourced entirely. In the right circumstance, there are attractive attributes to the LSO Fiduciary model, as (for example) it can allow a trusted investment advisor to continue to serve as the primary point of contact for family members.
The LSO Fiduciary model can present the perceived path of least resistance for estate planners and family members in what can be a difficult decision-making process.
The positive attributes come at a cost. For instance, these costs may be associated with conflicts of interest that may arise. The LSO Fiduciary’s ability to select an outside investment advisor creates a marketing opportunity – for the LSO Fiduciary. Close monitoring is important to evaluate whether the third party selected for investment management (or other outsourced services) by the LSO Fiduciary is the best choice for the trust or estate, or the best choice for the LSO Fiduciary.
An additional conflict of interest surfaces when the LSO fiduciary is introduced to the relationship by the investment advisor. The fundamental trustee duty of objectivity is at risk when the fiduciary is beholden to the investment advisor for a particular business opportunity.
Another potential cost comes from the overlay of fees. As noted previously, the outside investment advisor may charge 1% or more. Adding fiduciary fees for administration – which often include a billable hour component in the LSO Fiduciary model – can drive total fees significantly higher.
Next, the outsourcing of custody may present additional costs. An LSO Fiduciary may rely on a third party to have custody of financial securities. As such, assets will not be in direct control of the fiduciary. Outsourcing custody of fiduciary assets may lead to delays in cash movement, and delays in providing accurate accounting for assets.
A final word of caution: LSO Fiduciaries may lack basic expertise in investment management. Lack of investment management expertise at the fiduciary level leaves assets at risk of idle management and could lead to inconsistent supervision of outside managers.
The Intangibles of Tangible Personal Property Disposition
“Twice as much ain’t twice as good
And can’t sustain like one half could
It’s wanting more that’s gonna bring me to my knees…”
John Mayer[ix]
Many of us may feel the gravity of being weighed down by “stuff” – more formally known as Tangible Personal Property (“TPP”). TPP is property that can be touched, used, or consumed, and has intrinsic value. Examples include clothing, vehicles, jewelry, business equipment, furniture, art, silverware, musical instruments, and books.
Disposition of TPP is typically addressed in an estate plan by reference to a writing separate from the will. Per I.C. § 15-2-513, “the writing must either be in the handwriting of the testator or be signed by him and must describe the items and the devisees with reasonable certainty.”[x]
In my experience, less than half of estate plans to be administered include a completed list for disposition of TPP. In post-death administration, it is not unusual to hear from family members that the decedent verbally promised them specific items of TPP. But if it isn’t written down, it typically doesn’t happen.
When an estate owns personal property of significant financial or emotional value, I encourage estate planning attorneys to assist their client in completing the disposition list for TPP. This can be a tremendous service to the family. For example, one memorable list was 115 pages long. This list was typed, signed, and included photographs as well as a brief description of each item and identified its intended recipient. This saved the family significant heartache and disputes, as the decedent had a habit of verbally promising the same items to multiple family members.
Given the potential emotional impact of disposition of TPP, this area is ripe for litigation. Family members may be more willing to fight for grandma’s wedding ring, or granddad’s vintage Martin guitar – so plan accordingly.
Managing Real Estate as a Fiduciary Is Not a Passive Endeavor
“Real estate is a contact sport.”
Tracey Hampson[xi]
It is inevitable that real estate will be a component – perhaps the primary asset – of many fiduciary accounts. This said, it is important to follow a discipline when onboarding and managing real estate.
The “Big 3” steps to be followed include inspection, valuation, and insurance.
The inspection may reveal structural imperfections that need to be addressed, but most importantly should be targeted to health and safety concerns. Recently a trust I was administering owned a house on the Boise Bench that as fiduciary we were preparing to sell. The professional inspection revealed many deficiencies, but most worrisome was an exposed wire in the basement. Cost-wise it was an inexpensive fix for an issue that (left unresolved) could have had disastrous consequences.
The next step to follow is valuation, which may include an appraisal. A fundamental fiduciary obligation is to account to interested parties. Defensible information as to valuation may be best obtained via an appraisal.
Finally, it is essential that adequate insurance coverage be maintained on fiduciary-owned properties. Clients are well-served to work with a professional fiduciary that offers a blanket policy for fiduciary-owned assets across all accounts. In the absence of a blanket policy, a professional fiduciary must maintain contact with multiple agents, track claims quality of multiple carriers, and deal with a multitude of different policy provisions, coverage limitations, and premium due dates.
Serving as a professional fiduciary is a challenging field involving multiple disciplines.
The Financial Strength of a Professional Fiduciary Is Important
“Will you still love me, tomorrow?”
Carole King[xii]
The financial strength of a professional fiduciary is important. A successor fiduciary named in estate planning documents today may not serve for many years, or even decades. Does the professional fiduciary have diverse sources of revenue? Do they report financial information that can be reviewed by the public, such as bank call reports?[xiii] If a private fiduciary will not disclose financial information, how do you know they will be around when needed?
Consider reviewing public information about a professional fiduciary’s financial strength, when evaluating the best fit for your clients.
Conclusion: Plan for the Full Spectrum
“I’d love to change the world
But I don’t know what to do
So I’ll leave it up to you.”
Alvin Lee[xiv]
A message I consistently give to the trust officers on my team is that because the job responsibilities for being a fiduciary are so broad, there are many ways to be a great trust officer. Reviewing my own experience, Uncle Vic had only a modest financial and legal background, but was off the charts in terms of empathy, relatability, and compassion. While a professional fiduciary must possess technical expertise, we often find that the “human” elements are crucial to making an estate plan work. The best fiduciary likely offers a balance of technical expertise and people skills.
Clients are counting on their estate planning attorney for thorough advice, not just a transaction. A professionally crafted plan deserves care and effective administration. Because an estate plan is only as good as its administration and implementation, I encourage you to complete the estate planning spectrum by helping your clients choose the right fiduciary for their circumstances.
David C. Cooper
David Cooper serves as Chief of Trust and Investment Administration for Idaho Trust Bank. David is based in Boise and manages a team of trust officers and administrators in Boise and Coeur d’Alene. David also works directly with current and prospective fiduciary clients of the bank, and serves as a primary point of contact when attorneys refer prospective clients to Idaho Trust. David is an Idaho attorney who previously served as President and Bar Commissioner of the Idaho State Bar, and is immediate Past-Chairperson for the Taxation, Probate & Trust Law Section. He has also served as President of the Boise Estate Planning Council and as President of the Treasure Valley Estate Planning Council. He is a member of the Alaska and Kansas Bar Associations and is a graduate of the University of Kansas School of Law and the University of Kansas School of Business. He holds the designations of Certified Financial Planner and Certified Trust & Financial Advisor. In 2022 David was elected as a Fiduciary Counsel Fellow of the American College of Trust and Estate Counsel.
[1] Middle West and East Hit by Rains and Tornados, The New York Times (June 16, 1981).
[2] Bruce Springsteen, Streets of Philadelphia on Philadelphia: Music from the Motion Picture (Epic Soundtrax 1993).
[3] Joe South, Walk a Mile in My Shoes on Don’t It Make You Want To Go Home (Capitol Records 1970).
[4] Idaho Code § 63-3007 (“The term ‘fiduciary’ means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in a position of trust or fiduciary capacity for any other person or group of persons.”).
[v] American Rhetoric: Barbara Jordan – 1976 Democratic National Convention Keynote Address, https://www.americanrhetoric.com/speeches/barbarajordan1976dnc.html (last visited May 22, 2024).
[vi] Pablo Picasso Quotes, BRAINYQUOTE, https://www.brainyquote.com/quotes/pablo_picasso_120938 (last visited May 10, 2024).
[vii] See Benjamin Franklin, Poor Richard’s Almanac (1732).
[viii] Winston Churchill Quotes, BrainyQuote, https://www.brainyquote.com/quotes/winston_churchill_156920 (last visited May 10, 2024).
[ix] John Mayer, Gravity on Continuum (Sony BMG Colombia Aware 2006).
[x] Idaho Code § 15-2-513.
[xi] Alex Velikiy, 20 Funny Real Estate Quotes, Rontar (Jan. 17, 2024), https://www.rontar.com/blog/funny-real-estate-quotes/ (last visited May 10, 2024).
[xii] Carole King, Will You Love Me Tomorrow on Tonight’s the Night (Scepter 1960).
[xiii] See Federal Financial Institutions Examination Council Central Data Repository’s Public Data Distribution, Federal Financial Institutions Examination Council, available at https://cdr.ffiec.gov/.
[xiv] Alvin Lee, I’d Love to Change the World on A Space in Time (Columbia 1971).
Outgoing President’s Message by Gary L. Cooper
Do You Know Your Bar?
by Gary L. Cooper
Until I became a Bar Commissioner three years ago, I probably could not have accurately told you how many lawyers there are in Idaho. There are currently approximately 7,200 members of the Idaho State Bar, including a variety of license statuses. Of those 7,200, 1,700 are identified as emeritus, house counsel, judicial, senior, and inactive. That leaves about 5,400 active lawyers, 3,100 of which are active residents of Idaho and 2,300 who are out-of-state members. Although there are multiple sources with varying statistics, the American Bar Association identifies the Dakotas, Wyoming, Montana, Alaska, Hawaii, New Hampshire, Rhode Island, Delaware, and Vermont as having the same, or a less, number of active resident lawyers. It should come as no surprise that 70% of Idaho’s active resident lawyers practice in the Fourth District (Boise and the surrounding area).
In Idaho if you are an active member of the Idaho State Bar, or House Counsel, and have been admitted in Idaho for four or more years, you pay $425 for your annual license fee – that has been unchanged for the past 11 years. You can expect to see a request for a modest increase in your annual license fee in the next two to three years, but approval of any such increase will be subject to a vote by you, the members, during the Resolution Process. However, even increased fees will still be commensurate with our neighboring states. Wyoming charges the least, but Wyoming also has half the lawyers that Idaho does. The annual license fee for Active members in Wyoming is $355. In Utah the annual license fee is $445 which includes a mandatory assessment of $20 for the Client Security Fund. In Montana the annual license fee is $515, which includes various mandatory assessments. In Nevada it is $450. In Washington it is $473. In Oregon it is $688.
There are approximately 27 full time employees who work for the Idaho State Bar (“ISB”) and Idaho Law Foundation (“ILF”) located at 525 West Jefferson in Boise.
Diane K. Minnich has worked for the Idaho State Bar for 39 years – 34 as the Executive Director of both organizations. Diane has been to every Annual Meeting and has traveled at least 39 times to every judicial district in Idaho. Diane has a degree in behavioral science from San Jose State University. A testament to her effectiveness as a manager and leader is the fact that the average length of employment for staff members is 11 years and 13.5 years for the management staff. Diane oversees a budget of approximately $4,400,000. The ISB has received a clean audit for 13 years in a row. It is a foregone conclusion that Diane will retire in the near future. Her replacement will have big shoes to fill.
Joe Pirtle has been Bar Counsel for two years. He follows two legends in that job, Judge Mike Oths and Brad Andrews. Before he became Bar Counsel, Joe was a shareholder at Elam & Burke. Joe graduated from the University of Idaho with an undergraduate degree in business finance and a J.D. from the University of Idaho College of Law in 2004. Joe is assisted by Deputies Julia Crossland (George Washington University School of Law, J.D. 1986) and Caralee Lambert (Georgetown University, J.D. 1998). On average they answer over 100 ethics phone calls per month; intake approximately 30 grievances/complaints against Idaho lawyers per month; and participate in the investigation and disposition of those grievances. They also assist with claims to the Client Assistance Fund, investigations by the Character and Fitness Committee and provide advice to the Reasonable Accommodations Committee. Joe attends every meeting of the Board of Commissioners. During Joe’s two years as Bar Counsel, he has been involved in litigation in state and federal court defending the ISB and Board of Commissioners. Joe’s litigation experience has been invaluable in fulfilling his duties as Bar Counsel. My prediction is that when Joe retires, we will say that there have been three legends who have held the job of Bar Counsel.
Maureen Ryan Braley is the Associate Director and has worked for the ISB for 13 years. She graduated from Gonzaga University School of Law in 2004, clerked for Justice Schroeder, and worked as a litigator and deputy prosecutor before joining the ISB. She manages the admissions department, evaluates applications for admission, administers two bar exams a year, and oversees the grading of bar exams. In 2020 and 2021 there were 500 applicants each year and nearly 50 of those applicants were reviewed by the Character & Fitness Committee due to issues discovered during her evaluation of their applications. Maureen also oversees MCLE accreditation and reporting. She oversees the processing of approximately 6,000 MCLE requests per year for CLE course approval. You may have heard that there is a new bar exam called the NextGen Bar Exam which has been evaluated for several years to focus more on testing examinees’ skills and abilities than solely testing legal knowledge which research showed was focused too heavily on memorization. Maureen and Justice Robyn Brody have been actively involved in studying this replacement for the Uniform Bar Exam and, if you ask Maureen, she would be happy to explain the benefits of the NextGen Bar Exam. Maureen is also responsible for making sure that applicants for admissions meet the ethical standards of Idaho lawyers. The Bar approved a resolution in 2023 to grant admission to out-of-state lawyers based on experience rather than reciprocity. Making sure these new admittees are ethically qualified is Maureen’s responsibility. She does a fantastic job handling these important duties.
Annette Strauser is the Licensing and IT Administrator and has worked for the ISB for 40 years. In 2024, Annette managed 6,947 license renewals, 82% of which were handled online and the rest by check. The online licensing process has been available for 15 years and due to Annette’s expertise, it is quickly becoming the predominant method for renewing licenses which significantly reduces the time and expense associated with the renewal process. The ISB is working on further upgrades to its website which will allow lawyers to access their membership records and MCLE records faster and easier.
Teresa Baker is the ISB Program and Legal Education Director and has worked for the ISB since February 2019. She graduated from the University of Idaho College of Law with her J.D. in 1996, clerked for Justice Horton, worked as a deputy prosecuting attorney for Ada County, was the public information officer for the Idaho State Police, and Director of Government Affairs and General Counsel for the Idaho Association of Counties before joining the ISB. She organizes legal education opportunities for ISB members, works with the 23 different Practice Sections, and manages special programs including the Idaho Academy of Leadership for Lawyers and the Lawyer Assistance Program. Teresa is an organizational genius.
Lindsey Welfley is the ISB Communications Director. She received her B.A. in history from Grand Canyon University and has worked for the ISB since June of 2015. She manages The Advocate and monitors the ISB’s website and social media platforms. I admit that I do not know exactly what a social media manager does because I am barely capable of using social media. However, I know Lindsey watches it and was able to intercept a harmful attack on the ISB on a weekend, late at night. In other words, when nobody was watching she was on the job protecting the ISB. I also know that she has been incredibly helpful to me by editing and making my missives more readable for publication in The Advocate. For that I am forever grateful. Lindsey is a truly talented writer!
Craig Kenyon is the ISB Controller. He has worked for the Idaho State Bar since May 2023. He received his undergraduate degree from Boise State University and in 1997 he received his master’s in public administration. He comes to the ISB/ILF after 25 years of experience as a manager and accountant in the mining industry.
I do not have the space to mention any more of the numerous other staff and management team members which keep the Idaho State Bar and Idaho Law Foundation functioning efficiently. We are lucky that we have the leaders and managers mentioned in this article because we do not have to place our hands on the controls. The Idaho State Bar and Idaho Law Foundation are in good hands and providing exceptional services for all Idaho lawyers. It has been my honor to recognize some of the staff in this, my last article. See you at the Annual Meeting in Boise, July 17 – 19, 2024.
Gary L. Cooper
Gary L. Cooper was raised in Idaho. He received an undergraduate degree and law degree from the University of Idaho. He has practiced in Pocatello since 1975. For the last 25 years he has practiced with his good friends, Reed Larsen, and Ron Kerl. He and his wife, Jane, have three children and five grandchildren.
Department Report: Program Services by Teresa A. Baker
by Teresa A. Baker
Members of the Idaho State Bar have access to a variety of programs, resources, discounts, and services available that you may not know about. These resources can help improve your practice, personal life, leadership, and community involvement.
Join a Practice Section
Probably the most helpful resource to law practitioners in Idaho are the 23 Practice Sections. The members of these Sections offer support for each other in a myriad of ways including educational opportunities through monthly CLE sessions and annual conferences. Additionally, many of the Sections offer a listserv to their members wherein your questions are answered almost immediately by those practicing in the same area of the law.
However, the most beneficial reason to join a Section is to become better acquainted with other bar members as this helps us all by keeping the practice of law in Idaho civil and professional. Become a member of a Practice Section by visiting the Idaho State Bar website.
Approved Benefits Providers
The Idaho State Bar works with various organizations to offer benefits that we think our members would utilize and assist them in their practice, their career, and for their clients. Click on the “Approved Benefit Providers” tab on our website under Member Programs & Services to see the specific offerings.
Fastcase
This unlimited online legal research library is available to all active and judicial members at no-cost and is available for all other members for just $30 a year. The search engine includes two recently merged competitors and now offers even more legal resources including workflow, analytics and legal research including citation analysis, appellate summaries, and information on case treatment. Fastcase updates its database daily.
Idaho Academy of Leadership for Lawyers (“IALL”)
Our interactive leadership training program is designed specifically for lawyers. Each class consists of a diverse group of 12-20 members of the Idaho State Bar.
The mission of IALL is to promote diversity and inspire the development of leadership within the legal profession. IALL brings together lawyers from different practice areas with a variety of backgrounds from all across Idaho and builds upon the participant’s leadership skills to promote leadership experiences by:
- Teaching accepted and recognized leadership skills and philosophies;
- Fostering professional relationships within the Idaho legal community and the greater community;
- Promoting professional obligations and community service;
- Raising awareness among lawyers of the broad range of issues and challenges facing leaders today; and
- Engaging in the community through each member’s legacy project as part of the IALL practicum.
Applications for the 2024-2025 Class are now available on our website.
Lawyer Assistance Program
A 100% confidential program, the Lawyer Assistance Program (“LAP”) supports lawyers and judges who are experiencing problems associated with alcohol, substance abuse, depression, anxiety, and/or mental health issues in a safe manner. The LAP has a committee member in each judicial district and a 24/7/365 hotline at (866) 460-9014.
Mentor Program
The Mentor Program assists new lawyers in the transition from law school to a successful law practice. The program pairs new lawyers with an experienced lawyer in their local community. Experienced lawyer mentors agree to respond to general questions from the new lawyers and to give suggestions and offer guidance where appropriate about the practical aspects of practicing law. If you are interested in sharing your expertise with a newer member of the bar, please contact our program liaison Teresa Baker.
Attorney Well-Being Resources
Maintaining well-being is part of lawyers’ ethical duty of competence. It calls for healthy, positive choices to assure that lawyers can be their best for their clients, families, organizations, and communities. Further, to be their best, lawyers depend on many important contributors who are not lawyers. Therefore, well-being across the legal profession is an important goal.
The ISB Committee on Attorney Well-Being has provided many resources for all members of the legal community to maintain their well-being. This includes free on-demand CLEs on topics such as stress management and trauma-informed lawyering. The website includes activities to stay strong physically, align your spirit, grow your mind and career, while connecting with others and improving your emotional well-being. We invite you on this journey with us to live better lives!
Teresa A. Baker
Teresa A. Baker is a member of the Idaho State Bar. After practicing law for 20 years, she decided to serve her fellow attorneys and currently serves as the Program and Legal Education Director for the Idaho State Bar and Idaho Law Foundation.