Articles & Blog

Petition for Accounting and Surcharge

In the case of Guardo vs. Buzzuro, 7 Fiduc. Rep. 3rd page 14-19 (O.C. Monroe Co.2016), the Court was presented with a Petition to Compel an Accounting and Declaratory Relief by the Petitioner against Respondent/guardian. Respondent lived with her Aunt for 4 years from September 2010 through March 2014, and handled many of her finances. Her Aunt died in July 2014. Petitioner provided an accounting provided by the estate showing unaccounted funds and missing documents. Petitioner alleged that Respondent mismanaged decedent’s money while living with decedent for approximately 4 years. Respondent responded that she did not mismanage or convert funds and she did not know she was to keep extensive records.

The Court stated that the statute provides that the agent shall file an account whenever directed to do so by the court. 20 PS 5610. The Court stated that when money is unaccounted for in an estate the court could order the funds be repaid by the fiduciary in the form of a surcharge, and the burden to prove the wrongdoing is on the party who seeks the wrongdoing, and when sufficient discrepancy appears in the record then the burden shifts to the guardian or executor. The Court stated that a fiduciary acting under a power of attorney or as a guardian or caregiver is no different than an executor in such circumstances.

During a hearing the Responded was resolute in her position that written records were unnecessary because she handled many matters in cash and did her best to care for decedent. Even though the Respondent testified that records were not kept because she had no formal training or accounting skills, “the records are so bare that they do not meet the minimum of common skill or prudence.”

The Court stated that a surcharge against a fiduciary can only be initiated by an accounting by the fiduciary in question (which is the normal pattern), and the opposing party can file objections, and the court can then determine the amount of the surcharge, if any. And of course a party can appeal. In re Smith, 2006 Pa. Super.5; In re Estate of Bechtel, 92 A. 833 (2014); In re Novosielski, 605, Pa. 508, 992 A.2d 89 (2010).

The Court concluded that evidence was produced that warrants the filing of a formal accounting while the respondent was acting as the fiduciary, and that although the respondent may not be able to do so, the respondent should be given the opportunity to make a full accounting. Therefore, the Court granted the Petition to Compel the Accounting and deferred the request for Declaratory Relief until the accounting issue is resolved.

Forfeiture of Inheritance

The Orphan’s Court Division of the Court of Common Pleas of Monroe County, Pennsylvania was presented with a Petition for Forfeiture in Jansen Estate, 6 Fiduc. Rep., 3rd, page 375-381 (O.C. Monroe Co. 2016) .

The facts were as follows: The decedent was born on November 6, 1991, and suffered complications at birth which resulted in developmental delays and cerebral palsy. Subsequently, the decedent was declared to be an incapacitated person and the Petitioner (the mother) was appointed as the sole legal Guardian of the person and the estate. As result of complications, the Petitioner instituted a medical malpractice action which resulted in monetary settlement on behalf of the decedent. Petitioner and the father of the child separated soon after the child’s birth, and subsequently the father was incarcerated in 1993 until 1997 during which time, the father provided no care for the child from the time of his incarceration until the death of the child in 2014. The Petitioner and father were the sole heirs.

Title 20 of the Pennsylvania statutes 2106 (B) provides for forfeiture as follows .

(b) Parent’s share.–Any parent who, for one year or upwards previous to the death of the parent’s minor or dependent child, has:

(1) failed to perform the duty to support the minor or dependent child or who, for one year, has deserted the minor or dependent child; or

(2) been convicted of one of the following offenses under Title 18:

section 4303 (relating to concealing death of child);

section 4304 (relating to endangering welfare of children);

section 6312 (relating to sexual abuse of children);

or an equivalent crime under Federal law or the law of another state involving his or her child; shall have no right or interest under this chapter in the real or personal estate of the minor or dependent child. The determination under paragraph (1) shall be made by the court after considering the quality, nature and extent of the parent’s contact with the child and the physical, emotional and financial support provided to the child.

The Court concluded, after reviewing credible testimony and evidence, that the father deserted child, and/or failed to perform the duty to support the child in accordance with the above statute and therefore, the Petition for Forfeiture was granted.

Estate Tax Proposals

The estate tax proposal by Hillary Clinton, the Democratic Nominee for President, is to lower the exemption from $5,450,000 (which is subject to increases with inflation) to $3,500,000, and to increase the rate of tax from 40% to 45%.

The estate tax proposal by Donald Trump, the Republican Nominee for President, is to eliminate the estate tax.

The estate tax proposal by the Obama Administration is under proposed regulations issued on August 2, 2016, which would greatly eliminate valuation discounts regarding transfers of business entities between family members. A public hearing on these regulations is scheduled for December 1, 2016.

Gun Trusts

On May 18, 2016, our Third Circuit Court of Appeals in the case of United States of America vs. One Palmetto State Armory PA; Watson Family Gun Trust , 822 F.3d 136 (May 2016), affirmed the opinion of the District Court for the Eastern District of Pennsylvania that the Second Amendment does not protect the possession of machine guns, and a trust is not exempt from the law as it is not an entity distinct from its trustees. The Court agreed with the lower Court that 18 USC section 922 (o) is not unconstitutional with respect to a band on machine guns, and trusts are not exempt from that statute.

Crummey Notices

A Crummey notice may be a single notice that can serve as a continuing notice. Such single notice is actual and sufficient notice if it timely informs the beneficiary of when the gift occurs, the size of the gift, and that the beneficiary may make a withdrawal. For further discussion regarding actual and sufficient notice see the following: PLR 9532001; PLR 8121069; Regs. Sec.25.2503-3(b); Holland, T.C. Memo.1997-302;Turner, T. C. Memo. 2011-209; Zaritsky and Leimberg, Tax Planning With Life Insurance, 5.03; Katzenstein and Sellers, Giving Crummey Notices: Best Practices; Trusts & Estates; August 2011.

Executor’s Fees

The Peters case (Orphans Court of Montour County as previously discussed in our Blog) found in favor of the personal representatives regarding the amount of their executors fees. The case was appealed to the Superior Court and the Superior Court upheld the findings of the Orphans Court (NON- PRECEDENTIAL). The Superior Court reviewed section 3537 of the Pennsylvania probate code which provides “The court shall allow such compensation to the personal representative as shall in the circumstances be reasonable and just, and may be calculate such compensation on a graduated percentage”.

The Superior Court stated that the basis for determining if the compensation is reasonable depends upon the value of the services actually rendered, and there is no requirement in the statute that the executor “keep a time log on each hour spent” on estate matters in order to justify the fee, and compensation can be charged on a percentage basis.

The Superior Court reviewed the facts as found by the lower court of the detailed extensive work and the high quality of the work of the personal representatives and the percentage utilized. The Superior Court upheld the findings of the orphans court.

Form 8971

New IRS Form 8971 is required to be filed when a 706 Federal Estate Tax Return is required to be filed. The purpose of Form 8971 is to report the final estate tax value of property distributed, or to be distributed from the estate.
Form 8971would not apply to the surviving spouse as beneficiary if the marital deduction under section 2056 is applicable, nor would it apply to a charitable beneficiary if a charitable deduction under section 2055 is applicable. In those situations and entry of a “N” under column C under Part 2 of Schedule A is necessary.
This Form 8971 need be filed. the earlier of the date that is 30 days after the date which Form 706 is required to be filed including extensions; or the date that is 30 days after the date that Form 706 is filed. Form 8971 and attached Schedule A are to be filed separate and not part of Form 706.

IRA Beneficiary Change

In the case of the Sipos Estate, Fiduc. Rep. 3rd 256 (O.C.Philadelphia 2015) the Court was presented with a situation where the decedent had bequeath his IRA account to an individual in his Last Will and Testament, and he did so 2 years after said decedent had complied with the terms of the policy by designating another person as a beneficiary in the IRA beneficiary form. The Court cited established Pennsylvania precedent that a person who seeks to change the beneficiary of an insurance policy or IRA need follow the procedure set forth in the policy unless the insured made reasonable efforts to change the beneficiary in accordance with the procedures set forth in the terms of the policy but either because of illness was unable to do so and the Court cited other “reasonable” examples. The Court found that the decedent in this case was mentally and physically fine prior to death and surely could have followed the terms of the policy to change a beneficiary and therefore the beneficiary as provided in the policy supersedes the beneficiary of the Last Will.

Settlor’s Intent

The intent and purpose of the settlor of a trust or the testator of a last will is always an important factor. This is especially important when there is no clear provision in the will or trust regarding the issue at hand. The polestar of every trust (and in every will) is the settlor’s (testator’s) intent and that intent must prevail. In re Trust Estate of Pew, 191 A2d 399 (Supreme Court, 1963), Deed of Trust of Grant Cargo, 652 A2d. 1330 (Pa. Super. Court, 1995); Restatement of Trusts (Third) Section 50 (2) (2003) ; 11A Summ. Pa. Jur. 2d Probate, Estates, and Trusts 38:22 (2d ed.); Bogert, The Law Of Trusts And Trustees, Section 228, Discretionary Trusts; 20 (Pa.C.S.A.)7780.4.

Executors Compensation

Another case has touched upon the issue of executors fees; Peters Estate, 5 Fiduc. Rep.3rd 264 (O.C. Montour County, 2014). The Court found in favor of the co-executrices who have completed extraordinary amount of work and were seeking an amount of compensation based on a percentage of the assets administered. The Court cited Pennsylvania Statute section 20 PS 3537, which provides that the Court shall allow compensation which is reasonable and just under the circumstances, and may calculate such compensation on a graduated percentage. The Court further cited In Re Estate of Rees, 625 A. 2d 1203 (Pa. Super. 1993), which provides that a personal representative seeking compensation has the burden of establishing facts which show the reasonableness of their fees and entitlement of the compensation claimed. The Court also cited In Re Reed’s Estate, 340 A. 2nd 108 (Pa.Super.1975), which Court found that compensation may be rendered by a percentage, but the true test is what the services were worth.