I’m working on some materials for a CLE presentation entitled Remedies in Fiduciary Litigation. I’ll be giving it October 18, 2017 at the Lancaster Bar Association. Its also on the program for PBI’s Estate Law Institute in Philadelphia on November 14-15, 2017. Most of the equitable remedies available to beneficiaries whose interests have been harmed by an executor or trustee date back hundreds of years to the common law in England. But they don’t really do the job today. They are not adequate remedies. Here is an example:

What can a beneficiary do if she things the executor of the estate is paying too much in legal fees and taking too big of a commission as executor? The problem is how to get that issue before a court.  You will see that the deck is stacked against the objecting beneficiary. How does it work?

1. The executor must file an account for adjudication in order to get the matter before the court. There is no deadline for this. If it seems like it’s taking too long, and after being asked nicely the executor refuses, the beneficiary must go to court to compel an accounting. Unless the executor has a very good reason, usually the court will order him to file an account, in maybe three months.

2. One hopes the executor would file the account in the allotted three months. He may ask for an extension. He may just not file the account. In which case, back to court the beneficiary must go to have him held in contempt. (Remember all these trips to court require an attorney and legal fees, paid personally by the beneficiary.)

3. OK. We get an account filed for adjudication. Now the beneficiary, through her attorney, must enter objections to the accounting. This is a legal pleading and it is a "once and done" opportunity. The objections have to cover everything. If you forget something, or don’t mention it in the objections, you lose your rights to pursue it,

4. Next the executor, through his attorney, (who he is not paying personally but who is being paid out of the estate which further reduces what the beneficiary will get, right?) will answer the objections, presumably denying everything and saying he did no wrong.

5. Now the parties must prepare for litigation in earnest. They will seek discovery, that is production on both sides of relevant documents, records, and statements on which the accounting is based. Perhaps there will be depositions of the executor and others involved in the estate. There may be motions. It may be necessary for the beneficiary to hire an expert witness in order to prove that the executor breached his fiduciary duty. Again, the beneficiary is paying out of her own pocket for all of this,

6. Eventually, if the matter can’t be settled, it will be schedule for hearing – after months or years.

7. In the meantime, while all this is going on, the executor is holding all of the estate’s assets and has made no distribution. And he doesn’t have to. The executor is entitled to hold distributions until the approval of his account. That means the beneficiary can go for years, getting nothing from the state, and personally funding this litigation.

8. At the hearing thee will be testimony about what the executor did, what the attorney did, what is usual and customary to be received as compensation for each, citation of cases, and in many instances a duel of exert witnesses, one for the beneficiary saying the fees are excessive and one for the executor saying that they are not.

9. Time passes and then the judge will issue an-ruling and hopefully an opinion. In my experience, it is rare for fees to be significantly reduced. They may be chipped away at a bit, but tit is not very likely that they will be reduced enough to begin to cover the beneficiary’s attorneys fees

10. So is that beneficiary’s remedy adequate? I say ‘no.’

This blockbuster Adjudication, written by Judge Mark L. Tunnell is 212 pages long, and deals with many issues, but very significantly, with the issue of the appropriateness of attorney, accountant and executor’s fees.  Judge Tunnell’s opinion is very thorough, very organized and very compelling.  Unfortunately it is too long to be printed in the Fiduciary Reporter.  But here is a pdf of the opinion for your reading enjoyment.  The Estate of Sir John Rupert Hunt Thouron (“Sir John”) was valued at $46 million,  the estate of his son John Julius Thouron (“Tiger”) was valued at $13 million.

Cite:  Chester County Orphans’ Court Case of Estate of John H. Thouron, Deceased, and Estate of John J. Thouron, Deceased, Nos. 1507-0230 and 1506-0305.  

To begin at the end, instead of the beginning, in Tiger’s estate, the Executor Charles Norris was surcharged $753,0000 and the firm of Lamb McErlane PC was ordered to disgorge $135,882.

But hold onto your hat!   In the Sir John Estate, Executor Charles Norris was surcharged $5,672,999. Lamb McErlane was ordered to disgorge $4,351,310 in fees, and Norris and the Lamb firm were jointly surcharged $557,001.   Norris’ surcharge included $1,023,311 of accounting firm Maillie LLP fees that were disallowed and charged to the executor.

Appeals have been filed in the Superior Court.

More to follow in next post.




Estate of Powell v. Commissioner, 148 T.C. No. 18 (May 18, 2017).

Hold on to your seat!  This case has a huge impact on Family Limited Partnership (FLP) planning.  And yes, it creates a new “doughnut hole.”

For the very first time, the Tax Court held that where a decedent owned only limited partnership interests, they are brought back into the donor’s estate under IRC §2036(a)(2).  It also raises the specter of a possible double tax as partnership assets may be included under §2036 and under §2033.

The case has what most estate planning lawyers would call “bad facts.”  It was death bed planning done for a decedent, Nancy Powell, by her son Jeffrey, acting as an agent under a power of attorney.  The estate tax deficiency was $5.88 million.  There was also a gift tax deficiency of $2.96 million. 

Using his power of attorney, decedent’s son transferred $10 million of decedent’s securities to a FLP in exchange for a 99% limited interest.  The two sons contributed notes and receive a 1% general partnership interest.  The general partner had sole discretion to determine the amount and timing of distributions.  The same day, the son, acting as agent, transferred decedent’s 99% limited interest to a charitable lead annuity trust. (One other thing –  the document naming Jeffrey  as agent for his mother Nancy did not include the power to make gifts to anyone other than Nancy’s issue so how could the transfer to the CLAT be valid?)  The remainder in the CLAT was valued with a 25% discount for lack of control and marketability.  This is the source of he gift tax deficiency.

Nancy Powell died 7 days after the day that this transaction was completed by her son.

As if it wasn’t bad enough, the taxpayer in this case didn’t even bother to argue that §2036(a)(2) wasn’t applicable, or to argue that the full consideration exception applied.

The Tax Court held that §2036(a)(2) applied saying that the decedent in conjunction with the other partners could dissolve the partnership (isn’t that always the case?)  and the  decedent through her son Jeffrey who was the general partners and her agent, could control the amount and timing of distributions.  They found the fiduciary duty to be “illusory.”

What ever happened to Byrum?  That was a U.S. Supreme Court case (United States v. Byrum, 408 U.S. 125 (1972)) holding that retaining voting rights to shares of stock in a corporation that decedent had transferred to a trust did not require that the shares be included in his estate under §2036(a)(2)?  Why isn’t that controlling?

For the double tax specter, the court came up with a new concept – the “doughnut hole.”  They held that any consideration received in return for the contribution of securities to the FLP (here the receipt by Nancy of the 99% limited partnership interest)  is subtracted under IRC Section §2043 from the amount included in the gross estate under §2036.

But remember, the discount will be disallowed and the whole value included under 2036(a)(2) for inclusion purposes, but for consideration received, the 99% limited interest received as consideration will be discounted.  Hence, the doughnut hole.

The case can be appealed to the 9th Circuit.  Let’s hope it is.

If you’re spending your childrens’ money, you are probably breaking the law.  Parents often overstep their authority when dealing with their children’s money as shown in this case:  Werner v. Werner 2016 PA Super 2210.

Mother was custodian for two accounts for the benefit of her daughters under the Pennsylvania Uniform Transfer to Minors Act, 20 Pa. C.S.A. §5301 et. seq. ("PUTMA"). The original amount in the accounts when they were created in the mid 1990’s was $125,000.   Mother withdrew the funds from the PUTMA accounts in 2010 when they were worth $252,688.90 and purchased a house which she titled in her name alone.  When the house was purchased the daughters were 15 and 16.

In 2013 the daughters began a proceeding against mother asking for an accounting and alleging that she had violated her duties as custodian by misappropriating the daughters’ property.  The daughters also sought payment of their attorneys’ fees.

The Orphans’ Court ruled that mother violated her duty as custodian under PUTMA and as damages the daughters were entitled to receive the entire proceeds from the sale of the house – $507,000.  The request for attorneys’ fees was denied.  The Superior Court upheld the Orphan’s Court.

The Supreme Court of Delaware, on appeal from the Court of Chancery has emphatically upheld spendthrift protection in trusts in the case of Mennen v. Fiduciary Trust International of Delaware. The Chancery Court opinion can be found here. The Supreme Court affirmed here . A judgment of $88 million was placed against a trust beneficiary, George Jeff Mennen ("Jeff"). The judgment arose from Jeff’s alleged bad faith and willful misconduct as individual trustee of a trust established by his father for the benefit of his brother John. Section 3536 of Title 12 of the Delaware Code gives protection to beneficiaries of third-party spendthrift trusts.  The holders of the judgment in this case tried to get the court to recognize a public policy exception for tort claimants who are "persistent wrongdoers" that would allow them to recover from Jeff ‘s Trust. The answer was "no." The report of the Masterr, which was adopted by the Chancery Court , spells out the reasoning.

In Koons v. Commissioner  Case No. 16-10646 (4/27/2017) the 11th Circuit denied the interest deduction for interest on loan to pay estate tax.

Decedent’s revocable trust included a 70% interest in an LLC which had over $200 million in liquid assets.  The estate’s liquid assets were insufficient to pay the estate tax.  The executors refused the offer of a distribution from the LLC to pay taxes and instead, borrowed $10,750,000 from the LLC at 9.5% interest to pay the tax.  No payment was due for 18 years and the principal and interest were scheduled to be repaid in 14 installments between August 2024 and February 2031.  No prepayments were permitted.

The projected interest was $71,419,497 which was taken as a deduction on the estate tax return.

The IRS claimed a $42,771,586.75 estate tax deficiency and a $15,899,463 generation-skipping tax deficiency.

The estate relied on the Estate of Graegin v. Commissioner, 56 T.C.M. (CCH) 387 (1988)  which permitted interest deductions, holding that  “expense incurred to prevent financial loss to an estate resulting forced sale of its assets to pay estate taxes are deductible administration expenses.”

In Koons, the 11th Circuit held that the interest deduction is properly denied if the estate can pay its tax liability using the liquid assets of an entity but elects to obtain a loan from the entity and then repay the loan using those same liquid assets.

 Estate of Agnew v. Ross, 152 A.3d 247

Individuals who are not named in an executed testamentary document do not have standing to bring a legal malpractice actions against testator’s attorney, as purported third-party beneficiaries.

In November 2003, the testator Robert Agnew retained defendant-appellant Daniel Ross, Esquire, to draft various estate planning documents.  Over the next several years, Ross drafted various amendments to both the Revocable Trust and the Will.  As of 2010, Agnew’s Will bequeathed specific gifts of cash and property to selected friends and family members.  The remainder interest in the trust was to be distributed to Muhlenberg College, Temple University, Chestnut Hill College and Drexel University

In March 2010, Agnew was admitted into a hospice program.  During that summer, appellee Margaret Alzamora, contacted Ross and told him Agnew wanted to make changes to his estate plan.  She advised  Ross that the residue of Agnew’s Revocable Trust was no longer to be distributed to the three colleges indicated in the 2007 Trust Amendment, but now was to be divided into five equal shares between appellees.

Ross drafted an amendment to the Revocable Trust (the 2010 Trust Amendment), which continued to provide for gifts in the amount of $250,000 to four colleges, but expressly provided that the residue of the assets of the Revocable Trust was to be distributed to appellees.  Ross also drafted a revised Will, which provided various monetary gifts to appellees and their children.

Agnew signed the new will but he did not sign the trust amendment.

To the extent the attorney has drafted testamentary documents, which have been fully executed by the testator, such documents are conclusive evidence the testator intended to benefit the named beneficiaries, and we hold individuals who are named only in unexecuted, consequently invalid documents — such as appellees with respect to the 2010 Trust Amendment — may not claim status as third-party beneficiaries of the legal contract between the testator and his attorney, and may not achieve a legacy through alternate means, such as a breach of contract action. The trial court correctly determined appellees’ claims fail as a matter of law, and the Superior Court erred in reversing that determination.

A Power of Attorney is a very important and useful tool. It is often used in elder care so that the named agent can manage the finances of the principal. While the agent under a power of attorney can do many things, some things are prohibited. For example, an agent under a power of attorney cannot make a will for the principal. Can the agent make a trust?

Under Pennsylvania law, PEF Code Section 5603 an agent’s powers are limited as follows: "(b) Power to create a trust.–A power "to create a trust for my benefit" shall mean that the agent may execute a deed of trust, designating one or more persons (including the agent) as original or successor trustees and transfer to the trust any or all property owned by the principal as the agent may decide, subject to the following conditions: (1) The income and corpus of the trust shall either be distributable to the principal or to the guardian of his estate, or be applied for the principal’s benefit, and upon the principal’s death, any remaining balance of corpus and unexpended income of the trust shall be distributed to the deceased principal’s estate. (2) The deed of trust may be amended or revoked at any time and from time to time, in whole or in part, by the principal or the agent, provided that any such amendment by the agent shall not include any provision which could not be included in the original deed. (c) Power to make additions to an existing trust.–A power "to make additions to an existing trust for my benefit" shall mean that the agent, at any time or times, may add any or all of the property owned by the principal to any trust in existence when the power was created, provided that the terms of such trust relating to the disposition of the income and corpus during the lifetime of the principal are the same as those set forth in subsection (b). The agent and the trust and its beneficiaries shall be answerable as equity and justice may require to the extent that an addition to a trust is inconsistent with prudent estate planning or financial management for the principal or with the known or probable intent of the principal with respect to disposition of his estate."

There is more and more litigation over the scope of the power that may be exercised by an agent under a power of attorney. Disputes arise over gifts, joint ownership and changes of beneficiary. Where trusts are concerned, though, the law is pretty clear.

According to the American Bar Association Commission on Law and Aging, too many criminal justice professionals lack awareness in the role they can play in holding offenders accountable. An agent who violates the duty owed to the principal may have committee one or more crimes. The agent may have violated state and federal laws, including laws on

  • Exploitation
  • Embezzlement
  • Forgery
  • Fraud (e.g. credit card fraud, tax fraud, welfare fraud)
  • Larceny
  • Money Laundering
  • Theft

The National Center on Elder Abuse provides resources for social service agencies and the justice system. They help with response and prevention strategies for elder and vulnerable adult abuse. While mistreatment of the elderly and adults with disabilities have traditionally been viewed as family matters, criminal justice systems are adapting to better address elder abuse and neglect as a criminal issue.


AARP’s Public Policy Institute has produced a report written by Lori A. Stiegel and Ellen M. Klem of the ABA Commission on Law and Aging. The report explores the problem of the abuse of powers of attorney and how state legislatures can provide protection. The report can be downloaded here.

Also, see a National Center of Elder Abuse Fact Sheet: Durable Power of Attorney Abuse: It’s a Crime Too.


Here in Lancaster County, Pennsylvania, the Office of the District Attorney investigates and prosecutes elder abuse. In addition, abuse can be reported at the Lancaster County Office of Aging

The Pennsylvania Orphans’ Court Procedural Rules Committee published a proposal for new Orphans’ Court Rules in April 2013 with a comment period was open until June 13, 2013. After comments, some revisions were made. The Pennsylvania Supreme Court adopted these proposed new rules by Order dated December 1, 2015 with an effective date of September 1, 2016.

At the same time all local rules will be automatically repealed, except for local rules regarding adoption, guardianship and abortion control ACT proceedings. Any local rules that are desired by local courts or bar associations must be submitted to the Orphans Court Procedural Rules Committee no later than June 1, 2016 to determine that they are not inconsistent with these new proposed rules.

The Rules are intended to standardize procedures throughout the Commonwealth, as the Committee’s Report states:

"These new statewide O.C. Rules are intended to acoojmplish the following three objections:

(1) promote a standard statewide practice and reduce variations caused by reliance on local practice;

(2) provide clear procedures to practitioners and judges throughout the state, espeically those in counties without dedicated orphans’ court divisions; and

(3) harmonize orphans’ court proceedings with general civil practice to the extent possible."

The text of the new rules can be found here.

The Rules Committee is also working on revising the various orphans court forms such as petitions for adjudication to bring them up to date in light of these new rules, with the goal of having them being approved by the Supreme Court by the September 1, 2016 effective date.