Comparison of PA's Old & New Accounting Formats

What are the differences between Pennsylvania's "old" suggested format for fiduciary accounting, versus the "new" (post-Apr. 30, 2007) mandatory model fiduciary accounting formats?

The "old" suggested format was permitted for use in the Commonwealth's courts since January 1, 1974. The "new" model formats, which were announced on March 29, 2007, soon will be mandatory in Pennsylvania to present fund accountings in our courts. Absent specific permission by a court, the new formats must be applied as to filings made on & after April 30, 2007.

For background, see: PA EE&F Law Blog posting "PA's New Orphans' Ct Accounting Forms" (April 2, 2007).

Vincent F. Lackner, Jr., Esq., founder & President of The Lackner Group, Inc., of Pittsburgh, PA, just posted on the Pennsylvania Bar Association's "Probate & Trust" Law Division Listserv, his detailed comparison of the two sets of fiduciary accounting formats.

Vince's analysis can be relied upon. In the mid-1980s, he became nationally prominent for his leadership in the automation of fiduciary administrations, including forms management, "one-write" data entry, template correspondence, death & fiduciary tax preparation, and court accountings. Since 1986 (about the time when I first met him), his company has provided estate & trust software to hundreds of law firms, banks, and accounting firms located in approximately thirteen states, including Pennsylvania, where he began & maintains his efforts.

Vince recently teamed up with another nationally-known Pennsylvania fiduciary expert, Stephen R. Leimberg, Esq., to offer a new software program that calculates the effects of "decoupling" of state death taxes under the revised federal estate tax law, now fully in effect -- a very complicated subject.

They unveiled it at the 41st Annual Heckerling Institute on Estate Planning, in Miami, Florida, which I described previously here. Their presentation on Wednesday, January 10th, 2007, was reported here under the heading "Report on the Vendors":

Vince Lackner and Steve Leimberg, both well-known experts in the estate planning technology field, have created a new tool known as DecoupleCruncher.

DecoupleCruncher will handle a wide range of calculations in order to determine estate or inheritance taxes due in a single state or in multiple states.

The program handles deductions, including an optimized marital deduction (or the option to elect to pay estate taxes if desired), and allows you to reallocate assets among two or more states as well as to "Show or Refine Calculations." Vince and Steve have also included all relevant federal and state tables to assist you in understanding some of these rather odd results under various state regimes.

Vince and Steve held a lunch session to illustrate their new tool, which is based on the solid FileMaker Pro database platform that Vince uses for his 6-in-1 Estate Administration System.

Vince's analysis must be more than a merely academic exercise; it must be a practical implementation into a software product utilized by many professionals.

Following, then, is Vince's detailed comparison of the old suggested format of accounting, versus the new mandated formats of accounting. I appreciate his grant of permission for me to post his comments.

I have compared the revised Model Estate Account and Model Trust Account (released last Thursday, March 29, 2007) with the versions that have been attached to Rule 6.1(g) since January 1, 1974. Note: old Rule 6.1(g) has been re-lettered as 6.1(f).

Some of the changes are pointed out in (a) the Press Release, (b) Order No. 414, and (c) new Rule 6.1. All can be accessed from [this] link. By the way, it appears that the No. 441 on that page (as of [April 2, 2007]) should read No. 414 (this is the actual Order Number).

Note that the new Rule adds a Model Charitable Remainder Unitrust Account (not present in the prior Rule). This e-mail does not address that new format.

I would like to summarize key changes that were made to the Model Estate and Model Trust Account formats:

1) Form Name. As stated in the Order, the one account is now called "Model Estate Account" (instead of Model Executor's Account), and the other is now called "Model Trust Account" (instead of Model Trustee's Account).

2) Now The Only Format Approved for Filing in PA Courts. Unlike the previous rule, which allowed accounts to be filed in substantial conformity with rules prescribed or forms approved by the local Court, the new Model Accounts are now the only formats that may be filed. There is one exception: "Except where otherwise provided by a special order of the local Court in a particular case..." [Rule 6.1(e)].

Rule 6.1 does not apply to Accountings that are not filed with the Court but instead are provided to beneficiaries in connection with Receipt and Release, Family Settlement, or other non-judicial procedures. Thus, while practitioners who have been preparing simplified accountings will need to use the new format for filing with the Court, it appears that they may continue to use the simpler formats for informal (non-judicial) accountings.

3) Changes in Holdings. The new format eliminates the word "Investment" in "Changes in Investment Holdings". This seems appropriate because the word "Investment" unduly narrowed the scope of that section.

This section should include non-commercial real estate, tangible personal property, and other non-investment property that has been acquired, sold, distributed, or otherwise disposed of during the accounting period.

4) Principal and Income. Unlike the formats accepted for years in many counties throughout the Commonwealth, the new format requires that "principal and income shall be accounted for separately within the account" [Rule 6.1(b)]. Thus, principal and income may no longer be collapsed into single categories for receipts, gains/losses, disbursements, and distribution.

Somewhat curiously, the new formats (just like the old formats) don't have lines in the Income section of the Summary Page for "Investments Made" or "Changes in [Investment] Holdings" (as they do in the Principal section).

There is an age-old debate about whether assets purchased with income (through dividend reinvestment plans, etc.) should be tracked separately on the income side of the fence, but that is a topic for another day. I believe that adding distinctions (such as this one) not contained in the new model formats result in accounts that are still in "substantial conformity" with new Rule 6.1.

5) Disbursement Category: Federal, State & Local Taxes. The words "& Local" were added to this category.

6) "Verification" instead of "Affidavit". A notary seal is no longer required on the Affidavit Page, which has been appropriately renamed to "Verification". Instead, the personal representative signs that page "subject to the penalties of 18 Pa. C.S.A. Section 4904 relating to unsworn falsification to authorities."

This is consistent with the change made by the Court to the form of Inventory (Form RW-09) on October 16, 2006 (the date when standardized probate forms released for use throughout Pennsylvania).

7) Summary of Account: Line for Verification (and page number) added. A reference to the Verification page must now appear at the bottom of the Summary of Account.

The Verification is attached to the end of the Account, and will normally bear the last page number of the entire packet.

8) Combined Balance on Hand. Although there has been no change in this line near the bottom of the Summary of Account, we have been somewhat surprised at the popularity of including (in our software) a schedule that supports this Combined Balance number.

In effect, this Combined Balance on Hand schedule represents a collapsing of the separate schedules for Principal and Income Balances on Hand (which are still included in the Account). This appears to address the slight complexity inherent in the separate tracking of principal and income assets.

9) Proposed Distribution to Beneficiaries. This schedule has been eliminated as an attachment to the Model Accounts and as the first line of the Summary of Account. Apparently, the Court concluded that this information should appear more appropriately with the Petition for Adjudication [Distribution].

Again, on the theory that keeping a schedule that is no longer required still represents "substantial conformity", we still provide users with a checkbox option that will display that line on the Summary of Account and include it among the printed schedules.

10) Starting Point for Pagination. Because the prior Model Accounts attached to Rule 6.1(f) appeared (among other places) in the Pennsylvania Rules of Court, the internal pagination of the Accounts did not match the pages of the larger Pennsylvania Rules of Court book.

In the Model Accounts, however, pagination starts with the Cover Page, so that the Summary Page is page 2, and the schedules start with page 3. For the past 20+ years, our accounting format has left the Cover Page and Summary Page unpaginated, and has numbered the first schedule as page 1. If there is a hue and a cry for numbering the Cover Page as page 1 and the Summary Page as page 2, we will make that change.

11) Certain Liabilities Not Specifically Addressed. There is stated manner to display a mortgage or note liability on the new Model Accounts.

[Update -- 04/04/07: Eugene H. Gillin, Esq., exchanged email with Vince Lackner (with copies to me) about presentation in an accounting of an ongoing liability involving both principal repayments and interest on the obligation. Gene consented for me to post his comments, which I will do later this week.]

[Update -- 04/06/07: For my posting of Mr. Gillin's comments, see: PA EE&F Law Blog, "Clarifications on PA's New Accounting Formats" (04/06/07).]

Vince noted that his company's software was updated online on April 1, 2007, to be compliant with the new rules. Other vendors must do likewise for those accounts to be filed by their users on or after Monday, April 30, 2007, in Pennsylvania.