Louis N. Teti, LL.M.

Our June newsletter included my article entitled the "Top 16" List of Common Misconceptions in Estate Planning. Here is a further analysis of Misconceptions #8 and #7.

Misconception #8:
"My sister can handle the duties of Trustee…all she has to do is hold on to the Trust assets and make sure that the children receive them at the ages stipulated in my Will. It won't take her any time at all, plus she won't charge for serving."
Choosing an appropriate fiduciary is frequently a decision that is taken for granted. Clients often decide to appoint a child or a close family member, anticipating that the Trustee's duties are minimal, as long as ultimate distribution of the trust assets is made at the ages or at the time stipulated in the governing document. This is a serious misconception, and could lead to difficulties in the proper administration of the trust and the fulfillment of the trust's purposes.

The Trustee's duty is to preserve the trust assets and to invest them in a reasonable fashion. The Trustee must also provide periodic accountings, file any and all income tax returns that are necessary on an annual basis, pay estimated taxes, and, most importantly, interact with the trust beneficiaries to be certain that the terms and conditions of the trust are being fulfilled. Frequently, Trustees are granted broad discretionary powers to make distributions of principal for the health, education, maintenance or support of the beneficiaries. In order to adequately and effectively fulfill the duties and responsibilities of Trustee, the person so appointed must understand and be sensitive to the ongoing needs of the beneficiary. This takes time, and the Trustee could be called upon frequently to make difficult decisions on behalf of the beneficiary. The Trustee should be in regular contact with each trust beneficiary. Sometimes the Trustee will have to say "no" to a beneficiary's request for funds if the Trustee determines that it is not in the best interest of that beneficiary (or the other trust beneficiaries) to do so and/or if a request does not comply with the standards set forth in the trust for distribution of principal.

As far as charging for a Trustee's services, the old adage of "getting what you pay for" applies here. Many times, an individual family member appointed as Trustee is busy with his or her own life, but feels a moral commitment to fulfill his or her duties as the Trustee. This is frequently not a good decision, and it would be better if the Trustee who is appointed has the time and ability to effectively fulfill the role of Trustee. Clients frequently shy away from appointing a corporate fiduciary such as a bank, brokerage company or trust company, but, in many situations, a corporate fiduciary is the better option. Although there are personnel changes from time to time at these institutions, a corporate fiduciary provides objectivity, professionalism, and investment expertise and experience when serving in this important fiduciary position.

If you appoint an individual to serve as Trustee, be certain that you have thoroughly discussed this appointment with that individual before you sign your Will or trust document. Nothing is worse than an individual being surprised that he or she has been named a Trustee by a person who is now deceased. At that point, the fiduciary may feel guilty in saying "no," even if he or she is not capable of handling the role and responsibility of Trustee effectively. Review these decisions carefully with your estate lawyer before you finalize the appointments, and by all means obtain the consent of the person whom you have appointed to serve as your Trustee. Make sure that they know and understand what they are getting into, and what their responsibilities will be. The Trustee's job is crucial to the successful administration of the trust and the carrying out of the grantor's interest.

Misconception #7:
"Probate is something that I must avoid."
In my 31 years of practice, there is no single word that has generated more confusion, fear and misunderstanding than the word "probate." In Pennsylvania, and in most other states, the term "probate" is not synonymous with difficulty, simplicity, delay or some of the other words that have been used as a reason why people should "avoid probate." Thanks to the heavy marketing of "Living Trusts" throughout the United States, many financial planning groups have created a sense of fear whenever the word "probate" is mentioned. In some states, probate is an expensive process. Probate is a rather simple and straightforward process in Pennsylvania.

Upon a person's death, the Executor appointed in the Will, or in the case of an intestacy (where there is no Will) then the personal representative, files a petition with the Register of Wills in the county where the person resided at the time of his or her death. The Executor is usually accompanied by the lawyer for the estate, and the Register of Wills reviews the petition, examines the Will, and then administers a very short oath to the Executor or personal representative so appointed. Assuming there are no significant issues in the administration of the estate, and assuming that there are no beneficiaries who wish to challenge the Will or the manner in which the estate is being administered by the Executor or personal representative, the probate process does not require the Executor to visit the courthouse again. Assuming that all death tax returns have been filed, a proper Accounting has been prepared, reviewed and examined by all the beneficiaries, and an appropriate Receipt, Release and Indemnity Agreement has been signed by the beneficiaries, there is no further requirement to visit the courthouse, go to court, or seek a judge's approval for any aspect of the administration of the estate. Everything is handled on an informal consent basis.

In many cases where there are no Federal Estate Tax problems, and where all of the assets are owned jointly by two spouses, then there are good reasons to "avoid probate" at the first spouse's death; however, this may be done by simply keeping all assets in joint names. Keeping assets jointly titled is not always a good idea, especially in cases where the estate exceeds the amount of the Federal Estate Tax exemption equivalent, which is currently $2 million per taxpayer.

Do you need to avoid probate? Is it advisable in your situation? This is something which you should explore thoroughly with your estate lawyer, who will be able to counsel you effectively on the effect of probate in your own situation, and whether it is something that should be "avoided." However, do not assume that avoiding probate is necessarily a desired result in all estate administration cases.

MacElree Harvey
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West Chester, PA 19381–0660
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