One trustee of a trust lacks standing to sue a lessee for possession of real property titled in name of trust when the other trustee objects to the action and the Orphans’ Court has empowered the other trustee to sell the property. Nowicki Trust v. Righter, 10 Fid.Rep.3d 315 (C.P. Bucks 2020), aff’d 1117 EDA 2020 (Pa. Super. 3/19/2021) (non-precedential).
A 1954 letter from the corporate trustee established an agreement for trustee compensation of 5% of income, and the trustee did not produce evidence of extraordinary services to merit additional compensation or that the resulting fee was unreasonable. However, neither the letter nor the conduct of the trustee waived any right to interim principal commissions, and an interim principal commission was awarded in the reasonable amount requested, which was not an unconstitutional impairment of the original fee contract. The legal fees of the corporate trustee in defending the third account and its fees were not an expense of administration and were payable by the trustee and not the trust, while the reasonable fees of the objectors (who were also co-trustees) benefited all beneficiaries and should be paid from the trust. Wallace Ott Inter Vivos Trust, 10 Fid.Rep.3d 281 (Philadelphia O.C. 2020), aff’d 2021 PA Super 203 (10/12/2021). (The same opinion was republished at 11 Fid.Rep.3d 329.)
A lawyer representing the beneficiary of an estate is entitled to a “charging lien” against the beneficiary’s share of the estate for work performed before being discharged by the beneficiary, based on an oral agreement that the lawyer’s billings could be paid out of the beneficiary’s share. Fischer Estate, 10 Fid.Rep.3d 277 (Monroe O.C. 2020).
The Internal Revenue Service has released Rev. Proc. 2020-45 with inflation adjustments for 2021 and, consistent with earlier predictions, the changes in the most significant federal estate and trust planning numbers will be as follows:
- The base applicable exclusion amount (and generation-skipping tax exemption) will be $11,700,000 (was $11,580,000 for 2020).
- The annual gift tax exclusion will be $15,000 (unchanged).
- The annual gift tax exclusion for a non-citizen spouse will be $159,000 (was $157,000).
- The “2 percent” amount for purposes of section 6166 will be $1,590,000 (was $1,570,000).
- The limitation on the special use valuation reduction under section 2032A will be $1,190,000 (was $1,180,000).
- The top (37%) income tax bracket for estates and trusts will begin at $13,050 (was $12,950).
- The alternative minimum tax exemption for estates and trusts will be $25,700 (was $25,400), and the phaseout of the exemption will start at $85,650 (was $84,800).
The latest (10/21/2020) draft of instructions to the Schedule K-1 for Form 1041 provides guidance for reporting excess 67(e) deductions by beneficiaries of terminating estates and trusts that is similar to the guidance that was previously reported from the IRS website. The instructions now say:
“Box 11, Code A–Excess Deductions on Termination – Section 67(e) Expenses
“If this is the final return of the estate or trust, and there are excess deductions on termination that are section 67(e) expenses reported to you as a beneficiary, you may deduct the excess deductions shown in box 11, code A, as an adjustment to income. Report this amount as a write-in on Schedule 1 (Form 1040), Part II, line 22. On the dotted line next to line 22, enter the amount of the expense using the code ‘ED67(e)’. Include the expense in the total amount reported on line 22.”
Excess deductions that are not 67(e) deductions and are not miscellaneous itemized deductions are reported by individuals on Schedule A of Form 1040 on the appropriate line for the type of deduction. (The draft instructions state that “The fiduciary will provide you with a statement of allowable deductions.”)
What is not addressed by the draft instructions is how a testamentary trust would report excess 67(e) deductions on the termination of an estate, and that question has been submitted to the IRS as a comment on the draft.
For an explanation of the new regulations on the treatment of excess deductions on termination of estates and trusts, see “Final Regulations on Administration Expenses and Excess Deductions.”
Westmoreland County has rescinded local Orphans’ Court Rule WO5.17, relating to small estate petitions. “Orphans’ Court Rules; No. 3 of 2020” (9/29/2020), 50 Pa.B. 5843 (10/24/2020).
Because 20 Pa.C.S. § 6111.2(b)(4) does not require that a post-divorce “designation of a former spouse as a beneficiary” be in writing, and because the decedent “substantially complied” with the life insurance policy provisions for beneficiary designations by orally advising the insurance agent that he was divorced but wished his former spouse to remain the beneficiary of the policy, and it was reasonable for him to take no further action after the agent advised him (incorrectly) that no additional written documentation was needed because the former spouse was already designated as the beneficiary, the proceeds of the policy were properly payable to the former spouse. State Farm Insurance Company v. Kitko, ___ A.3d ___, 2020 PA Super 253 (10/20/2020).
Executor and her attorney were surcharged for excessive and unreasonable attorney fees because the attorney time records that were submitted had the descriptions of services redacted and so they failed to meet their burden of proof. Stoughton Estate, 10 Fid.Rep.3d (Lawrence O.C. 2020).
Costs incurred in selling decedent’s home were substantiated by a HUD settlement statement, and objections to minor discrepancies between the account and the amounts shown on the settlement statement were de minimis and overruled. Objection to attorney fee of $1,000, being less than 1% of the estate, and to an accounting fee of $200, were both overruled. However, an objection to the administrator’s commission was sustained because the administrator treated the estate as a “personal ATM” and violated his fiduciary duties. Finally, an objection was sustained to the payment of funeral expenses of a beneficiary’s wife out of the beneficiary’s share of the estate. Shearlds Estate, 10 Fid.Rep.3d 257 (Philadelphia O.C. 2020).
The administrator of an estate cannot require an alleged child of the decedent to take a DNA test, and the child may rely on the other factors in 20 Pa.C.S. § 2107(c) to establish paternity. Ackley, Sr. Estate, 10 Fid.Rep.3d 253, 55 Monroe, No. 41, P. 10 (Monroe O.C. 2020).