[This article was originally published on 1/31/2011 as Steve Leimberg’s Estate Planning Newsletter #1768] The new tax act [Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010] provides a gift and estate tax exclusion of $5,000,000, and many…
Surcharge against guardian should be upheld on appeal because guardian never requested a continuance of the surcharge hearing and her absence from the hearing was part of a pattern of obdurate and dilatory conduct. Estate of Estelle Segal, No. 2, 9 Fid.Rep.3d 46, No. 658IC of 2016 (Philadelphia O.C. 12/4/2018), on appeal, 3041 EDA 2018 (Pa. Super.).
Claim by daughter under personal care agreement with mother was denied when personal care agreement was product of undue influence because mother was dependent on daughter for her care and had appointed daughter as her agent under a power of attorney. Van Horn Estate, 9 Fid.Rep.3d 33 (Lycoming O.C. 2018)
A holographic will that ended with the initials of the testator was validly signed and was not executed by a “mark” within the meaning of 20 Pa.C.S. § 2502(2). Pedersen, Sr. Estate, 9 Fid.Rep.3d 29 (Monroe O.C. 2018).
The Supreme Court has allowed an appeal from an order directing a trustee to provide the beneficiaries with unredacted copies of lawyer fee invoices that the trustee paid from trust funds. Both the Orphans’ Court and the Superior Court had denied that the invoices were protected, or that the order was appealable.
In its order allowing the appeal, the Supreme Court stated that the issue presented by the appellant trustee was:
Do the attorney-client privilege and work product doctrines protect communications between a trustee and counsel from discovery by beneficiaries when the communications arose in the context of adversarial proceedings between the trustees and beneficiaries?
In re: Estate of William K. McAleer, Deceased, 345 WAL 2018 (2/4/2019), now 6 WAP 2019.
See “Discovery of Attorney Invoices not Appealable” for a summary of the Superior Court decision and a link to the full text of the decision.
The Supreme Court’s action in allowing the appeal seems peculiar, because it is limited to a single issue that the Superior Court had held was not appealable. How can the Supreme Court consider the merits of the appeal without addressing the issue of whether the issue is appealable?
I received some emails recently from someone who was very unhappy that a court was not allowing him to represent a family member in court, even though he had a power of attorney authorizing him to “pursue claims and litigation” in accordance with 20 Pa.C.S. §§ 5602(a)(20) and 5603(s).
I think that most lawyers would know instinctively that the Probate, Estates and Fiduciaries Code is not going to allow for the circumvention of bar admission rules, and is not going to authorize an agent to appear in court to represent the principal, but it might be useful to know why that is going to be the result.
Section 10(c) of Article V of the Pennsylvania Constitution provides that the Supreme Court shall have the power to prescribe general rules “for admission to the bar and to practice law…” And the Supreme Court has exercised that power by adopting the Pennsylvania Bar Admission Rules, 204 Pa.Code. Ch. 71.
The Probate, Estates and Fiduciaries Code provides in Chapter 56, “Powers of Attorney,” that a principal may empower an agent to “pursue claims and litigation.” 20 Pa.C.S. § 5602(a)(20). That power is defined in 20 Pa.C.S.
§ 5603(s) as:
Power to pursue claims and litigation.–A power to “pursue claims and litigation” shall mean that the agent may:
(1) Institute, prosecute, defend, abandon, arbitrate, compromise, settle or otherwise dispose of, and appear for the principal in, any legal proceedings before any tribunal regarding any claim relating to the principal or to any property interest of the principal.
(2) Collect and receipt for any claim or settlement proceeds; waive or release rights of the principal; employ and discharge attorneys and others on such terms (including contingent fee arrangements) as the agent deems appropriate.
(3) In general, exercise all powers with respect to claims and litigation that the principal could if present.
The words “appear for the principal” in subsection (1) might make it sound like the agent can appear as a lawyer might appear. Also, that the agent may “exercise all powers with respect to claims and litigation that principal could if present” in subsection (3) would, if taken to its most extreme interpretation, mean that the agent could appear for the principal “pro se” and without a lawyer, just like the principal could appear pro se and represent himself or herself without a lawyer. But those interpretations would be contrary to the principle that the Supreme Court regulates who can represent other people in court.
The possible conflict between the Constitution and 20 Pa.C.S. § 5603(s) was addressed by the Superior Court in Kohlman v. Western Pennsylvania Hospital, 438 Pa.Super. 352, 652 A.2d 849 (1994), and the Constitution won, the court noting that “To construe the Probate Code so as to permit a non-attorney to appear and represent a principal in a court of record would be to permit the licensing and admission requirements to be circumvented,” and “the power of attorney cannot be used as a device to license laypersons to act as an attorney-at-law.” 438 Pa.Super. at 359.
My one criticism of the Kohlman decision is that it conflates what are two somewhat different issues: the power of the courts to regulate who practices before them, and the power of the legislature to punish those who hold themselves out as lawyers. The Supreme Court can regulate who practices law within the courts regardless of what laws are enacted by the legislature, but it is doubtful that they can regulate the behavior of people who never attempt to represent anyone in a courtroom.
What is (or is not) the “unauthorized practice of law” outside of a courtroom is an interesting question, particularly as it relates to estate planning and estate administration, and those are issues I hope to address in a future article.
There is what seems like an unnoticed provision of Chapter 76 of the Probate, Estates and Fiduciaries Code that is inconsistent with other provisions of Chapter 76 and could invalidate what would otherwise appear to be a natural and valid…
As previously reported, the Supreme Court Orphans’ Court Procedural Rules Committee has published a draft of a new Pa.O.C. Rule 5.50 that it intends to propose to the Supreme Court to specify the contents of a petition to settle a small estate in accordance with 20 Pa.C.S. § 3102. “Proposed Adoption of Pa. O.C. Rule 5.50,” 49 Pa.B. 444 (2/2/2019).
What will probably be the most controversial part of the rule is subsection (b)(2), which requires that the petition include a list of all assets of the decedent’s estate, other than real estate, but then states that:
“If it appears that all creditors cannot be paid in full, then include all other assets in which the decedent had an interest as a joint tenant with right of survivorship, together with the value of each such asset and decedent’s fractional interest therein.”
Requiring disclosure of joint tenancies as part of a small estate petition raises a number of questions and concerns.
The proposed rule on disclosures of joint tenancies is presumably meant to cover joint bank accounts, which may be subject to the claims of the decedent’s creditors if the estate is insolvent. See In re Estate of Stevenson, 436 Pa.Super. 576, 648 A. 2d 559 (1994). The same result may also be required by the Pennsylvania Uniform Voidable Transactions Act, 12 Pa.C.S. § 5101 et seq., because the termination of the decedent’s interests in a joint account at the death of the decedent, and the resulting increase in the interests of the surviving joint owners, should be considered a transfer that is voidable if the transfer renders the decedent’s estate insolvent. See “Rights of Creditors in Non-Estate Assets” for a more extended discussion of this issue.
So unpaid creditors may have interests in accounts or other assets of which the decedent was a joint owner, and the proposed rule requires disclosure of those joint accounts. But should that disclosure be required as part of a petition for settlement of a small estate?
According to the publication report of the procedural rules committee, a subcommittee “examined local rules and polled counties on the extent of small estate practice,” so it is likely that the proposed rule for disclosure of joint tenancies came from a county in which one or more judges thought that they could (or should) do something if there are unpaid creditors and joint accounts. But what have those judges been doing with that information, or what did they think they could do?
Under 20 Pa.C.S. § 6304, the surviving parties to a joint account are the owners of the account following the death of a joint owner, and § 6306 provides that transfers the transfers under § 6304 are not “testamentary” and not subject to the rules relating to intestate succession and wills. So a joint account would not be property of the decedent and the account would not be subject to a § 3102 petition.
Even assuming that the Orphans’ Court would have jurisdiction to adjudicate the interests of creditors in property that is not subject to administration by a personal representative, due process (and the jurisdiction of the court) would require that the surviving joint owners of an account receive notice of any proposed disposition of the account and an opportunity to be heard. The surviving joint owners might or might not receive notice of the filing of the small estate petition, but that would not be sufficient to give them notice of the possibility that their rights in the joint account were in dispute.
So a court receiving a small estate petition could not order a disposition of a joint account without further notice to the joint owners, which might require the filing of a new petition with additional information needed to determine the disposition of the joint account. So what is the court going to do with the joint account information in a small estate petition? Will it sua sponte order the petitioners to file a new petition with notice to unpaid creditors and the surviving joint owners in order to recover money from the joint accounts for the benefit of creditors? If so, who will compensate the petitioners (or their counsel) for these additional efforts?
Although the proposed rule does not say so, it appears that the joint account information that is to be included in the small estate petition is merely intended to be (or will necessarily only have the effect of being) a notice to creditors that there are other assets that might be used to pay their claims, but if they want those assets they will have to do something about it.
If the proposed rule is requiring to creditors that non-estate assets exist in which they might have rights, is the proposed rule creating a duty of disclosure that did not previously exist, and a new substantive right for creditors?
Cases in Pennsylvania have held that the personal representative of an estate has standing to set aside voidable transfers in order to pay debts of the estate. See, e.g., West v. Young, 332 Pa. 248 (1938); Chester Co. v. Pugh, 241 Pa. 124, 88 A. 319. In the administration of an estate, a personal representative has fiduciary duties to the creditors of the estate. But does the personal representative have a duty (and not just a power) to attempt to set aside voidable transactions for the benefit of creditors? No known case addresses that issue.
Even if the personal representative does not have a duty to take steps to set aside voidable transfers, does the personal representative have a duty to notify creditors of the existence of voidable transfers? No known case addresses that issue either, and the petitioners to a small estate proceeding under § 3102 are not the same as personal representatives, so if there is no such duty, should a procedural rule create a duty of disclosure (or right to disclosure) where none previously existed?
There is nothing in the rules relating to audits of accounts (Chapter II of Pa. O.C. Rules), and nothing in the required form of petition for adjudication (Form OC-01) that would require disclosure of joint accounts when an estate is insolvent. If the Procedural Rules Committee believes that it is appropriate to create a duty of disclosure to creditors, why is the new duty limited to small estate petitions?
Because the proposed rule only applies to small estate petitions, and would not apply to “regular” audits and petitions for adjudications, it creates an additional disincentive to the use of small estate petitions when an estate is insolvent and there a joint accounts that are potentially subject to the claims of creditors.
One of the problems with a small estate petition is that it requires information about the assets and liabilities of the decedent that may be difficult or impossible for petitioners to get without first obtaining letters of administration or letters testamentary. So in many (perhaps most) cases, it is necessary to file a petition for probate or letters in order to administer the estate, and a small estate petition is not practical.
It may be even more difficult to get information about joint accounts, because the statements may have been going to the account owner(s) other than the decedent, and banks and other financial institutions usually won’t provide information about joint accounts even to the personal representatives of a decedent’s estate.
If the petitioners under § 3102 don’t have complete information about joint accounts, what will they be required to disclose? Old records of bank accounts that might or might not exist any longer? The petitioners’ recollections of statements made by the decedent? Information from Forms 1099-INT that are received after death but for which the petitioners have no other information?
The proposed language is also uncertain in meaning, or perhaps misleading, when it requests the “decedent’s fractional interest therein,” because there is a difference between fractional interests for Pennsylvania inheritance tax purposes and the interests that would be subject to the claims of creditors.
For inheritance tax purposes (which is what estate lawyers are usually most concerned with), the decedent’s taxable interest in a joint account is the “fractional portion” that is the value of the whole account divided by the number of joint tenants. Section 2108(a) of the Inheritance and Estate Tax Act, 72 P.S. § 9108(a).
But that is not what might be subject to the claims of creditors. Under 20 Pa.C.S. § 6303(a), a joint account is owned in proportion to the contributions of the parties during the lifetimes of the parties. 20 Pa.C.S § 6304(a) provides that a decedent’s interest in the account is divided equally among the surviving joint owners and augments their lifetime interests. If the purpose of the proposed rule is to disclose what might be subject to claims of creditors, then it is the lifetime ownership of the decedent that should be disclosed because that is what is being transferred at death.
As a practical matter, the decedent’s lifetime interest in a joint account will usually be either 100% or 0%. For example, if a mother puts her money into a joint account with her son, 100% of that money is owned by the mother during her lifetime, and 0% is owned by the son. Following the death of the mother, the entire account may be subject to her creditors, but none of the account should be subject to the son’s creditors if he predeceases his mother.
If the rule requires disclosure of the number of joint tenants (the fractional interest for inheritance tax purposes), it doesn’t tell creditors anything relevant to their claims. If the proposed rule requires disclosure of the ownership of the account during lifetime (which is based on lifetime contributions to the account), it may require information that the petitioners do not have. (See discussion above about the extent of the duty to investigate.)
What might be useful to creditors is to know the names and addresses of the surviving joint owners, but that is not what the proposed rule requires.
In re Estate of Stevenson, 436 Pa.Super. 576, 648 A. 2d 559 (1994), cited above for the proposition that a joint account may be subject to the claims of the creditors of an insolvent estate, actually dealt with claims for unpaid administration expenses against “in trust for” accounts established by the decedent during his lifetime, but the decision interpreted the 20 Pa.C.S. Ch. 63, which applies to both trust accounts and joint accounts.
The principles of the Pennsylvania Uniform Voidable Transactions Act, 12 Pa.C.S. § 5101 et seq., should generally apply to any account or other property which is considered to be owned by the decedent during lifetime but passes to others at death, and so “transfer on death” registrations under 20 Pa.C.S. Ch. 65 would also be subject to claims of creditors.
If the purpose of the rule is to require disclosure to creditors of assets that my be subject to their claims, there would seem to be no good reason to include joint accounts but exclude trust accounts and other forms of “transfer on death” or “pay on death” registrations.
The inescapable conclusion is that the proposed rule requiring disclosure of joint accounts in small estate petitions has not been well thought out. Either the proposed rule over-reaches, because it requires the disclosure of non-estate assets which are not proper subjects of a § 3102 petition and creates a new duty of disclosure and new rights of creditors where none previously existed, or it is overly restrictive because it provides a rule of disclosure which only applies to small estate petitions and fails to require disclosure all non-estate transfers which could be subject to claims of creditors.
Berks County has amended local Orphans’ Court Rules 2.5A, 2.7A, 14.1A, 14.3A, 14.4A, 14.8A, and 14.8B, and adopted new Rules 2.6A, 2.6B, and 2.6C. “Amendments to Local Rules; No. 19-1 Prothonotary” (Berks Co. 1/17/2019), 49 Pa.B. 616 (2/9/2019).
When the will unambiguously left the testator’s estate to his four children in equal shares, it was error for the court to interpret the will to treat gifts made by the testator’s agent after the execution of the will as “advancements” that reduced the donees’ shares of the estate. It was also error for the court to sua sponte order that a joint account be included in the executor’s account as an asset of the estate when no party had raised the issue. In re: Estate of Alexander T. Tscherneff, 2019 PA Super 25 (2/1/2019).