Articles & Blog

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.

Discretionary Trust

In the case of In re Stout (J-829044-13 (PA Sup. Ct. March 10, 2014)) the Superior Court affirmed the lower court’s findings regarding a discretionary trust. The creditor of the beneficiary claimed that the trustee abused its discretion by not distributing assets to the beneficiary so as to satisfy the creditor for the claim against the beneficiary.

In that case a mother transferred real estate to her daughter and on that same day, the daughter transferred one dollar to a newly created trust and the said real estate to that same trust with the daughter as settlor and the mother and her son as beneficiaries. The trust contained a spendthrift clause and the trust provided that the trustee was to distribute assets in its sole and absolute discretion. The lower court found no statute or case that prohibits the owner of recently acquired property from adding that property to a trust.

The lower court then reviewed section 20 Pa. C.S.A. section 7744 (b) of the Pennsylvania Uniform Trust Act which provides as follows:

“(b). Distribution not compelled. Except as otherwise provided in subsection (c), whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee’s discretion, even if :

(1) discretion as expressed in the form of a standard of distribution;

(2) the trustee has abused its discretion; or

(3) the beneficiary is a trustee or cotrustee of the trust.

The lower court found no abuse of discretion by the trustee failing to pay creditor of the beneficiary. The Superior Court affirmed the lower court’s decision that a valid discretionary trust existed and there was no abuse of discretion.

Common Law Trademark

Trademarks are either words or names or logos or a combination that distinguishes a person’s business product or service from that of another. For protection against other subsequent users a trademark need be used in commerce. A trademark may be registered with a state (for intrastate protection), and/or with the federal government (for intrerstate protection). However many times small businesses cannot afford the cost of registration of a trademark; however for unregistered marks protection is afforded under a common-law trademark. Common law trademark protection is independent of registration. Any business that uses a trademark in commerce has a common-law right to that trademark. There may be some protection under common-law trademark even though another business has subsequently used and registered the same trademark. The first person to use a particular trademark in commerce obtains a common-law right which allows them to prevent any other person from using the trademark in a manner which would cause confusion in the competitive market area (the public might confuse one business’ product with another). The best and important way to protect a common-law trademark right is by placing a “TM” symbol in the lower right corner of any trademark, name or logo for which common-law trademark protection is sought. The “TM” symbol should be included any time the protected name or logo is displayed or used in commerce.

Executors Fee

In January of this year in the Haffner Estate, 5 Fiduc. Rep. 3rd 195, the Monroe County Court of Common Pleas of Pennsylvania held that for purposes of a fee for a personal representative of an estate the Court relies upon the Johnson fee schedule found under the Johnson Estate, 4 Fiduciary Reporter 2nd 6 (O. C. Del. Ct., 1983). It found that such schedule provides a percentage basis for a fee and eliminates having to calculate hourly rate and comparing subjective analysis of the value a personal representative’s time. The Court found that the Johnson schedule to be fair and reasonable in most cases, and to be paid a higher amount it must be shown that the administration of the estate was extraordinary; and any deviation down from the Johnson schedule would require objectors to show an extraordinary lack of time or effort regarding administration of an estate.

ABLE ACT

Under legislation in existence for many years, a family may set aside funds with a tax-free savings account under a 529 plan to help with their college costs. Since December 2014 a family may similarly set aside funds in a tax-free savings account for a disabled person.  Those funds can be used for disability related expenses. This new legislation titled,Achieving a Better Life Experience (ABLE Act), is an amendment to section 529 of the Internal Revenue Code.

The funds set aside under an ABLE Act plan could be used for a disabled person for disability related expenditures not covered by Medicaid or Medicare.  Such expenditures are known as “qualified disability expenses” which include, but are not limited to: education; housing; transportation; employment; training and support; personal support services; healthcare expenses; and administrative services. Distributions from the ABLE account used for “qualified disability expense” are not taxable income. If however, the funds are used for non-disability related expenses there is a 10% penalty.

Contributions are not deductible for federal income tax purposes, just as college savings plan contributions are not deductible for federal income tax purposes. Certain states may allow the contributions to be deductible for state income tax. Each state will establish and administer the new ABLE program as they have for college plans. Different investment opportunities will be available for the ABLE savings account subject to each state’s regulations.

The total contributions by all individuals to the account is limited $14,000 per year. The disabled person may be employed and may contribute to the account. Only one ABLE account is allowed for a disabled person. For purposes of eligibility for SSI and Medicaid the first hundred thousand dollars of the account is exempt from eligibility for the means testing of those programs.

In Pennsylvania if a disabled person utilizes their own funds and contributes to a special needs trust, they must receive approval from the Department of Public Welfare and first pay off existing payments made by DPW  (see 62 P.S. section 1414).   Unofficially, the PA Department of Public Welfare has taken the position that contributions by a disabled person to their own ABLE savings account do not fall under that statute because the account is not a trust.