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1 Fiduciary Duty & Litigation Risk Spotting The Issues Presented by: Thomas A. French, Esquire email@example.com
2 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Failure to Liquidate Assets in Timely Manner/Failure to Calculate Assets Properly In re Shilling Estate, 4 Fiduc. Rep. 3d, 8 (2014). Issue- Whether executors of the estate and the attorney representing the executors were subject to reduced fees and/or liable for extra fees when distribution was miscalculated Holding- Both executor’s and executor’s attorney were subject to a reduced fee for their work on the estate distribution. The defendants were not liable for extra taxes beneficiaries paid as a result of the miscalculated distribution.
3 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Failure to Liquidate Assets in Timely Manner What’s the risk? Surcharge for loss in value due to delay in liquidation. Executor’s have a basic duty to collect and possess estate assets, liquidate them unless a beneficiary elects to receive them, to pay debts and expenses, and make distribution after proper accounting..
4 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Record Keeping Duties In re Gardener Estate, 3 Fiduc. Rep. 3d, 387 (2013). Issue- Whether defendant, as acting as power of attorney, breached his fiduciary duty to keep a full and accurate record Holding- Defendant breached fiduciary duty by engaging in self-dealing by paying himself for services performed, commingling funds, and “double- dipping” into accounts while keeping inadequate records of the transactions.
5 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Record Keeping Duties A trustee has a duty to maintain clear, complete, and accurate books and records regarding the trust. It is important for the fiduciary to keep clear and complete records so that the beneficiary can tell whether the fiduciary has acted with prudence, loyalty, and impartiality and whether the costs of administration have been reasonable and appropriate..
6 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Fiduciary Duties of an Agent for the Principal 1. Exercise powers vested in him by the power of attorney for the benefit of the principal 2. Keep separate the assets of the principal 3. Exercise reasonable caution and prudence with regard to exercise of powers 4. Keep a full and accurate record of all actions, receipts, and disbursements on behalf of principal. 20 Pa. C.D. § 5601(e)..
7 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Distributing the Estate- Profit Sharing Plans In re Manchilla Estate, 3 Fiduc. Rep. 3d, 287 (2013). Issue- Whether proceeds of decedent’s profit sharing plan passed to his estranged wife or to his children Holding- Despite the decedent’s on-going divorce, the wife retained rights in profit sharing account under federal law, which preempts contrary state law; ERISA provides that the beneficiary must give waiver in writing, which wife never gave.
8 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Distributing the Estate- Profit Sharing Plans If a plan is ERISA qualified, ERISA will preempt any state law A spouse is required to sign over their benefit in writing for a valid transfer.
9 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Testamentary Capacity In re Estate of Nalaschi, 90 A.3d 8 (Pa. Super. 2014). Issue- Whether decedent lacked testamentary capacity to create a will Holding- Burden of proof was not met; challenger had failed to point to enough evidence contemporaneous with the actual date of execution to invalidate the will.
10 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Testamentary Capacity Testamentary capacity exists when a testator is aware of the natural objects of his bounty, the composition of his estate and what he wants done with it, even if his memory is impaired by disease. Courts evaluate testamentary capacity on the date of the execution of the contested Will. Evidence of such state of mind may be received for a reasonable time before and after execution as reflective of Decedent’s testamentary capacity. This information can be supplied by lay witnesses as well as experts..
11 © 2014 Rhoads & Sinon LLP. All Rights Reserved.. Testamentary Intent In re Fawley Estate, 3 Fiduc. Rep. 3d, 254 (2013). Issue- Whether decedent intended to gift estranged wife income from a joint tenant with entireties account Holding- Decedent did not intend to gift the monies, as evidenced by his quick removal of the funds and by the couple seeking separation
12 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Testamentary Intent In re Estate of Zeevering, 78 A.3d 1106 (Pa. Super. 2013). Issue-Whether parties explicitly excluded from specific bequests were entitled as beneficiaries in the residual estate Holding-All children are entitled to the residual estate. Even though decedent expressly intended to exclude some children from his specific bequests, a court will not read into the intent of a party..
13 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Testamentary Intent Intent must be express in a will or other distribution plan Intent will not be read into a will Even if some provisions expressly exclude a would-be beneficiary, that intent is not read into other parts of the document.
14 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Lost Wills In re Estate of Wilner, 2014 Pa. Super. 94 (2014). Issue- Whether the Will could be admitted into probate where only existing copy did not contain signatures Holding- The court was bound by the two-witness rule. Since only one witness was available, the Will could not be admitted to probate; second codicil could not serve as second witness.
15 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Lost Wills To establish a lost Will, there must be proof by two witnesses, not only of due execution, but of the contents, substantially as set forth in the copy offered for probate. Proof of a lost Will is made out only by proof of execution and of contents, by two witnesses, each of whom must separately depose to all the facts necessary to complete the chain of evidence, so that no link in it may depend on the credibility of but one..
16 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Conflicts of Interest In re Whitby Estate, 4 Fiduc. Rep. 3d, 133 (2014). Issue-Whether firm representing one of the executors of the estate should be disqualified for a conflict of interest for its prior representation in drafting the will Holding- Firm should be disqualified. The interests of the executors would not be aligned in recovering the funds taken by the agents.
17 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Conflict of Interest In re Thouron Estate, 3 Fiduc. Rep. 3d, 435 (2013). Issue- Whether firm was disqualified for conflict of interest in estate administration Holding- The disqualification was not required; substantial time had passed since the firm had worked with clients and prejudice would result if disqualification was granted..
18 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Conflicts of Interest Attorney involved in estate planning may not later litigate its distribution if (1) the interests are materially adverse to that person; and (2) the lawyer acquired information that is material to the matter; unless the former client gives informed consent, confirmed in writing..
19 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Abuse of Assets In re Weinberg Estate, 4 Fiduc. Rep. 3d, 86 (2014). Issue- Whether mother should be removed as custodian for minor child Holding- Mother did not abuse funds, even tried to replace them when she was able; father’s action was equal parts concern for child and to harass mother (as his ex-wife).
20 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Abuse of Assets A fiduciary must keep trust assets separate from his/her own personal assets and from the funds of any other trusts. A fiduciary cannot use the assets of the estate in place of their own.
21 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Overreaching Powers of Fiduciary In re Edler Estate, 4 Fiduc. Rep. 3d, 105 (2014). Issue- Whether power of attorney included authority to create a trust Holding- Power of attorney that created an irrevocable trust that divested the decedent of the corpus of her assets was legally null; in the alternative, the power of attorney was terminated both by the principal of agent and/or son was barred in equity from challenging the transfer.
22 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Domicile In re Perelman Estate, 3 Fiduc. Rep. 3d, 307 (2013). Issue- Whether decedent was domiciliary of Florida or Pennsylvania at the time of her death Holding-Decedent was a domicile of Pennsylvania. She had no intent to remain in Florida, and her social and medical networks were in Pennsylvania..
23 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Domicile A person has one domicile Requirements Physical presence Intent to remain Impacts the law applicable for distribution.
24 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Overreaching Powers by Fiduciary The fiduciary is under an absolute duty to administer the fiduciary assets solely in the interests of the beneficiaries. A fiduciary cannot act outside of the limits provided in the instrument.
25 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Other Points of Interest 1. Availability of tax refunds for all eligible claimants Muscarella v. Commonwealth of Pa., 87 A.3d 966 (Ct. Cm. Pls. 2014). 2. The dissolution of a trust and subsequent impact on Medical Assistance Eligibility Schnell v. Department of Public Welfare, 80 A.3d 844 (2013).
26 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Tax Refunds Muscarella v. Commonwealth of Pa., 87 A.3d 966 (Ct. Cm. Pls. 2014). Issue-Whether PA Dep’t of Revenue as they define a “claimant” as an individual living the entire year were invalid and violative of the DPC and EPC Holding- Property tax rebates are available to all qualifying claimants, not just those qualifying claimants who live for the tax year; claimant definition violates DPC and EPC.
27 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Tax Refunds Property tax rebates are available to all qualifying claimants, not just those qualifying claimants who live for the tax year.
28 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Dissolutions of Trusts and Medical Assistance Eligibility Schnell v. Department of Public Welfare, 80 A.3d 844 (2013) Issue: Whether BHA erred as a matter of law and/or abused its discretion in refusing to remove the penalty period for assets transferred from a trust created more than five years prior to Petitioner's admission to a nursing facility and in concluding that the trust was an available resource. Holding: No error; the renunciation of beneficiary’s benefit of her children for less than fair market value supported the denial of her Medical Assistance- Long Term Care benefits..
29 © 2014 Rhoads & Sinon LLP. All Rights Reserved. Dissolutions of Trusts and Medical Assistance Eligibility If assets are disposed of for less than fair market value on or after the look- back date, the individual will be ineligible for a period of time calculated based on the amount of assets transferred and the cost of private payment for nursing facility care. 55 Pa.Code §§ 178.104, 178.104a. For trusts, look-back period is 60 months from the date of application.
Objective 9 Be aware of the basic documents used in Estate Planning 9
Wills, Trusts and Estates
©2001 West Legal Studies in Business. All Rights Reserved. 1 Chapter 50: Wills, Trusts, and Elder Law.
© 2007 ME™ (Your Money Education Resource™) Estate Planning for Financial Planners Chapter 4: The Probate Process.
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Estate Planning Intestate Succession Intestate Succession Wills Wills Trusts Trusts Class 9.
Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN The Irrevocable Life Insurance Trust:
Week 6. Recap How to make a will Intentionalities and formalities Interpreting the will Revoking the will Reviving the will Dependent Relative Revocation.
Preneed Preplanning Advance Funeral Planning. Terms Prearranged vs. Prefunded Guaranteed vs. Nonguaranteed Revocable vs. Irrevocable.
Final Draft and Execution of a Valid Will
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© 2004 ME™ (Your Money Education Resource™) 1 Estate Planning Chapter 13: Generation Skipping Transfers.
Documents: Wills Duke Legal Project. Purposes of a will Transfer property Name an executor to handle transfer of property Name a guardian for minor children.
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© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 51 Wills, Trusts, and Elder Law Chapter 51 Wills, Trusts, and Elder Law.
Well, I’ll Get Around to it.... WHO NEEDS AN ESTATE PLAN? EVERYONE!
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