Thursday, May 31, 2007

Gillin, Barrett & Drayer on "Accounts"

Eugene H. Gillin, Esq., an attorney who practices with the Philadelphia law firm Harkins and Harkins, granted me permission to post the following article, entitled "Revised Model Fiduciary Accounts: What You Should Know", in its full length.

This article was co-written with
Mary Jane Barrett, Esq., also of that firm, and Honorable Calvin S. Drayer, Jr., a Judge of the Orphans' Court Division, Court of Common Pleas of Montgomery County, PA. These co-authors are members of the Pennsylvania Supreme Court's Orphans' Court Procedural Rules Committee; and Mary Jane serves as its Chair. Eugene H. Gillin serves as an ad hoc Committee Member, who guided the accounting format changes through the Committee and the Supreme Court approval process.

That Committee had drafted, proposed for public comment, further revised, & then finally recommended to the Pennsylvania Supreme Court, a set of "Model Fiduciary Account" forms that were adopted by Order of that Court, and that now are mandatory for use in accounts submitted by fiduciaries in Pennsylvania for court audit and confirmation.

For background & relevant links about the Model Account Forms, see prior PA EE&F Law Blog postings:

This article will appear in the forthcoming Spring, 2007 issue of the Newsletter of the Real Property, Probate & Trust Law Section, of the Pennsylvania Bar Association, which will be available soon in both printed & downloadable (PDF) formats, to members of the Section.
With the authors, the PBA retains copyright of the article; and it should not be further reproduced without their consent.
"Revised Model Fiduciary Accounts:
What You Should Know"
by Eugene H. Gillin
with Mary Jane Barrett & Hon. Calvin S. Drayer, Jr.

New Account Forms

On March 29, 2007, the Pennsylvania Supreme Court issued an Order amending Pa. O.C. Rule 6.1 and approved Revised Model Forms of Account for an Estate and Trust and a new Model Account for a Charitable Remainder Unitrust. The Model Accounts and the previously approved “Uniform Fiduciary Accounting Principles” appear in the Appendix to the Orphans’ Court Rules. The Rule change and Model Accounts became effective on April 30, 2007.

The Model Accounts Project complements the statewide fill-in forms adopted by the Court last fall. Fiduciary lawyers using model forms and filing accounts that conform to the samples no longer need to be concerned about maintaining an array of forms for use in particular counties. Practitioners and judges in small counties that may not have offered pre-printed forms or lacked local Orphans’ Court rules now benefit from materials that reflect the collaborative effort of experienced Orphans’ Court lawyers and judges across the state.


In luncheon remarks to the Supreme Court Orphans’ Court Procedural Rules Committee at its February 2005 meeting, Chief Justice Ralph J. Cappy charged the Committee with the task of conforming Orphans’ Court forms and practice to a statewide benchmark. Work to accomplish that objective commenced immediately and issuance of the Order approving the revised and new forms of Model Account effectively fulfills the Court’s directive.

The Model Accounts previously incorporated in Rule 6.1 were originally adopted in 1974 to provide a uniform form of account for Pennsylvania as “county practice” was then the order of the day with certain counties requiring formats that differentiated between real estate and other assets. The former Model Executor’s Account and Model Trustee’s Account previously approved under Pa. O.C. Rule 6.1(g) were modified to correct mathematical and formatting errors and reflect other changes unique to practice in Pennsylvania, while remaining consistent with the model accounts recommended for use by the Committee on National Fiduciary Standards.

The Fiduciary Accounting Standards Report has been moved to the Orphans’ Court Rules Appendix but remains the seminal document defining the purposes of fiduciary accounting. The Model Charitable Remainder Unitrust Account is new and incorporates additional schedules that permit the Orphans’ Court and the parties to whom the unitrust account is furnished to verify that unitrust payments, which are based upon the annual value of the trust principal, have been accurately computed and distributed.

Required Use

Revised Rule 6.1 mandates uniform accounting methods consistent with “best practices” by requiring that accounts be prepared in conformity with the published models, except upon special order of Court. The former rule, which permitted local courts to accept alternate accounting forms, was inconsistent with the Supreme Court’s objective to standardize practice throughout the commonwealth.

Rule 6.1 enumerates the separate schedules that may be required in the course of preparing an account as “receipts, gains or losses on sales or other dispositions, disbursements, distributions, investments made and changes in holdings, and other schedules as appropriate.” Distributions had previously not appeared in the litany of enumerated schedules. The revised rule also requires that “principal and income shall be accounted for separately within the account.” Thus, assets held in a dividend reinvestment plan will require that income investments and changes in holdings be tracked separately from assets held in the principal portion of an account.

Details of Changes

The cover page of all models removed references to Social Security or Tax Identification Numbers in light of privacy concerns and the pervasiveness of identity theft. The models include forwarded subtotals and the heading of each page within the account repeats the name of the involved schedule to make it easier for interested parties to understand the information presented. While no page number appears on the cover page, it is always intended as Page 1 and the pages that follow are numbered sequentially. As certain counties have fee schedules that include per-page charges, this method insures accuracy in the page count.

The summary and index page removed the “gross estate” calculation included in earlier drafts as the methodology of determining this amount remains dependent on county practice and the related fee schedule of such county.

The schedule of Gains or Losses on Sales or Other Dispositions in the Model Trust Account illustrates the sale of a residence and reflects the gross sale proceeds (and was intended to be so labeled, but that glitch can be remedied when the models are tweaked again in 25 years) and the expenses of sale are enumerated in the principal disbursements section of the account.

The preferred method of handling a so-called closing charge (unpaid fiduciary compensation, counsel fee or costs) is illustrated in the Disbursements of Principal schedule of the Model Trust Account. The counsel fee omits a marginal date and is identified as an expense “to be paid.” By handling the expense in this fashion, interested parties are informed that the fee has not yet been paid but the principal balance of the account is reduced to reflect the unpaid disbursement thereby insuring that beneficiaries understand that the balance anticipates sums to be paid.

"Drayer Rule"

The schedule of Changes in Holdings includes a refinement that came to be known to members of the Supreme Court Rules O.C. Rules Committee as the "Drayer Rule".

Judge Drayer remarked that he found the Changes in Holdings schedule a useful tool to track an investment within an account. For this reason, an entry will be required within this schedule for every asset received either as a receipt, subsequent receipt or investment, unless, at the end of the accounting interval,

  1. the same asset remains in the balance with no other intervening activity (split, spinoff, etc.);
  2. the asset was sold in a single transaction and therefore is no longer in the balance;
  3. an asset was purchased in a single investment transaction and remains in the balance; or
  4. an investment was purchased in a single transaction and sold in a single transaction and therefore is no longer in the balance.
Fortunately, the computer programmers who have replaced the court accounting personnel, with their green eye shades and pocket protectors, will understand these requirements and have or will adapt their products accordingly.

Distribution Presentation

The previous Model Accounts did not include a signature line for the fiduciary to sign the account at the end as is now required by Rule 6.1(b)(4). The Verification Page replaces the notarial acknowledgment that appeared in the earlier models.

The prior Model Executor’s Account included Proposed Distribution schedules. A determination to eliminate these schedules was made as, in many cases, marketable securities are a component of the balance for distribution. Any “current” value included in a matter filed with the court would necessarily be stale by the time a Decree of Distribution or Adjudication was issued by the auditing judge.

Thus, the fiduciary should ordinarily request the court to direct the filing of a Schedule of Distribution after approval of the account. The use of a Proposed Distribution schedule might still be appropriate in matters settled informally as the time lag would not be a factor. Most commercial software includes this feature but its use must be considered in context.

Unitrust Accounts

The Model Charitable Remainder Unitrust was added to the array of models and includes those additional schedules necessary to make an account of this type susceptible to review by interested parties without reference to extraneous information. The account follows the schedule pattern of the estate and trust models with additional information schedules added to show the composition of the trust portfolio at the beginning of each tax year along with the corresponding unitrust payout calculations. The intention was to illustrate a “plain vanilla” ‘69 Act Unitrust.

Accounts for other split-interest vehicles could be prepared along similar lines depending upon the distribution requirements of the instrument or applicable law. The three-year smoothing rule comes to mind as a common requirement.


In short, what’s new is simply the refinement of the accounting format familiar to fiduciary lawyers and their para-professionals.

Pennsylvania remains in the forefront of this process as the next iteration of the treatise by Professors Robert Whitman and David M. English on Fiduciary Accounting (last published by ALI-ABA in 2002) is expected to include the Model Charitable Remainder Unitrust and the Model Estate and Trusts Accounts just approved by the Pennsylvania Supreme Court but edited to eliminate entries specific to Pennsylvania practice for a text distributed nationally.

Wednesday, May 30, 2007

PA Guardianship Reform Report Issued by JSGC

On Tuesday, May 29, 2007, the Joint State Government Commission, through its Working Group on Guardianships, issued a formal report to the Pennsylvania Legislature, entitled "Report on Guardianship Law in Pennsylvania", dated May, 2007.

A three-paragraph introduction to the Guardianship Law Report was posted by JSGC on that date here, along with the Report's full text (PDF, 112 pages) here. For those involved in guardianship procedures in Pennsylvania, I believe that this Report should be considered "required reading".

The Guardianship Study Group was constituted on May 11, 2005, by a unanimous vote (196-0), of the Pennsylvania House of Representatives, upon House Resolution 131 (Printer's No. 1861). HR 131 was sponsored primarily by Rep. Glen Grell, together with 33 other co-sponsoring Representatives.

The purpose of the Guardianship Study Group was set forth in HR 131, as follows:

A Resolution directing the Joint State Government Commission to review current guardianship statutes and programs and make findings and recommendations on the effectiveness of these statutes and programs in meeting the needs of vulnerable incapacitated persons.
For further background about the ad hoc "working group" comprised of many interested organizations & individuals, and that group's subsequent review of existing guardianship law & procedures in Pennsylvania, see my prior postings on the PA EE&F Law Blog: The members of the Guardianship Study Group included: Alternates for represented organizations included:
  • Administrative Office of PA Courts: Nichole Duffy
  • PA Department of Aging: Anna Marie Borro, James Bubb, & Debra Carroll
  • PA Department of Health: Jennifer Ebersole & Dwayne Heckert
  • PA Department of Public Welfare: Jackie Cunningham, Dan Fellin, Ginny Rogers, & Glenn Williams
  • PA Health Care Association: Michael Jacobs
  • Registers of Wills & Clerks of Orphans’ Court Association of PA: Bradley Jacobs (York Co. Reg/Wills & OC Div Clerk)
    This is the introduction to the Report:
    Guardianship Law in Pennsylvania

    House Resolution 131 of 2005 (Printer’s No. 1861) directed the Joint State Government Commission (JSGC) to review current guardianship statutes and programs and make findings and recommendations on their effectiveness in meeting the needs of vulnerable incapacitated persons. The JSGC formed the Working Group on Guardianships, and Representative Glen R. Grell, the prime sponsor of House Resolution 131, became the Chair. The working group consisted of professionals with expertise in guardianship law, including attorneys, judges, representatives of the court system, guardianship providers, advocates for disabled and older individuals, law professors and representatives from Area Agencies on Aging (AAAs), the Pennsylvania Association of Non-Profit Homes for the Aging (PANPHA), the Pennsylvania Association of County Affiliated Homes (PACAH), and the Pennsylvania Departments of Aging, Health and Public Welfare.

    On January 26, 2006, the working group held its organizational meeting to discuss the scope of the study and the issues for consideration. The working group then held six subsequent meetings, on April 27, 2006; July 20, 2006; September 28, 2006; November 16, 2006; January 19, 2007 and March 28, 2007. Throughout its deliberations, the working group reviewed and discussed data and other background information, statutory law, bills before the General Assembly, case law, the JSGC report of May 1996, the Uniform Guardianship and Protective Proceedings Act, and guardianship and court practices across the Commonwealth. In addition, the working group members shared their expertise and personal experiences regarding guardianship practices and procedures.

    This report reflects the findings and recommendations of the working group, along with proposed legislation and official comments. The official comments may be used in determining the intent of the General Assembly. This report also contains background information on the AAAs and PACAH, including the surveys distributed by the JSGC. Finally, this report contains working group policy considerations regarding data collection, the monitoring of guardians, funding, education and training, government oversight, access to records and reporting requirements.
    On a later date, in another posting, I'll review the contents of the Guardianship Study Report.

    Tuesday, May 29, 2007

    Dealing with Death: "Passages" Book

    A new book was released on March 1, 2007, that contains a multi-cultural, inter-faith collection of poetic, philosophical, & inspirational writings on the "mystery of death" and its "meaning in life".

    Passages: The Mystery of Death - Finding Meaning in Life is briefly described on the book's website:

    Passages is a unique collection of poems, philosophy and inspirational writings exploring the meaning of death, and life.

    Beautifully printed and linen bound,
    Passages is a thoughtful and sensitive gift for those who have lost a loved one.

    For those exploring their own mortality or confronting death,
    Passages comforts us while it challenges us to think about death, and life, in new ways.

    On that website here, a longer description of the book is provided:

    Death is an inevitable stop along the timeless journey of life. Whether we are grieving the loss of a loved one, or confronting our own mortality, death will touch us all. This collection of poems, philosophy, and inspirational writings surveys man's exploration of the mystery of death and, in death's reflection, the meaning of life.

    From across time and around the world,
    Passages brings together the work of great poets and philosophers, and common men and women. This collection includes works of the ancient Greeks, Confucius, Lao-Tzu, Buddhist monks and Sufi mystics intermingled with great American and European poets. Excerpts from the Bible, the Bhagavad Gita and the Koran are represented along with wise proverbs of the Crowfoot and Minquass Indians and the Ewe and Dinka people of Africa.

    Winding its way through life's most emotional and solitary experience,
    Passages comforts us while it inspires and challenges us to think about death, and life, in new ways. Bringing new perspective, meaning and comfort at a time in our existence when we feel so alone, Passages reveals through poetry, philosophy and inspirational words that we are all one.

    Excerpts from the compiled material in Passages are available online here.

    In a press release entitled "Passages: The Mystery of Death - Finding Meaning in Life", dated May 11, 2007, one of the editors was quoted:
    Death is an inevitable stop along the timeless journey of life. Whether grieving the loss of a loved one, or confronting our own mortality, death will touch us all. Tomas and Garth Fuller assembled a collection of poems, philosophy and inspirational writings surveying man's exploration of the mystery of death and, in death's reflection, the meaning of life. * * *

    "Understanding the impact of death is a significant part of life for all of us and it transcends geographic and cultural boundaries," said Tomas Fuller, co-editor * * *.

    "Passages addresses the inevitable human experience of death and dying in a very personal and individual way that can provide inspiration and comfort during the most challenging times of our lives," he added.

    Editors Tomas Fuller and Garth Fuller share this collection of simplistically insightful and meaningful reflections on a not so simple topic. * * *

    Those who have ever experienced the loss of a loved one or close friend have felt the impact and comfort Passages provides. * * *

    One of the book's readers also was quoted:
    "When my mother died suddenly, the days after her death were absolutely overwhelming for me. Never having gone through such a loss before, I needed something that could provide me with perspective, something that would keep me from feeling hopeless and withdrawing from friends and family.

    Leafing through the pages of Passages gave me the strength to face the dark days after her death not as the end, but as a new beginning," said Karl Jakobsen, a 30-year-old California artist and video game designer.
    One of the editors, Tomas Fuller, has an accounting & audit background. He presently serves as the chief financial officer of VCA Antech, Inc., a leading provider of pet health care services in the country with a nationwide clinical laboratory system and over 375 free-standing animal hospitals.

    The collection appears to be "self-published" by GarTom Publishing, and promoted by a publicist, Agnes Huff Communications Group.

    But the publication pedigree should not detract from the thought-provoking wisdom in the collection, since its sources are diverse, deep, & dependable.

    Furthermore, as indicated on Amazon, the desire of the editors appears fundamentally non-commercial:
    In addition to helping people deal with the experience of loss, Tomas wanted to create a special gift that can be shared with those in grief.

    Passages, Tomas provides all people with a book that is both giving and resourceful.
    The book can be obtained through the book's website direct-order process, in "select" bookstores, or on Amazon's website here. Further information can be obtained through an email request ( or to the book's publicist (

    The press release concludes with a statement that reinforces the apparent motivation of the editors: "A portion of the proceeds from the sale of Passages are donated to charitable organizations supporting grief counseling, hospice and enlightened end-of-life care."

    Update: 05/30/07:

    Professor Gerry W. Beyer, author of the Wills, Trusts & Estates Prof Blog, noted my posting about the Passages book, by way of his entry, dated May 30, 2007, entitled "Passages: The Mystery of Death - Finding Meaning in Life".

    Friday, May 25, 2007

    Assisted Reproductive Tech Act Proposed in PA

    Do you believe in synchronicity?

    On May 24, 2007, I received from the staff of the Joint State Government Commission the printed "Report of the Subcommittee on Assisted Reproductive Technologies" (PDF, 45 pages), released as of May, 2007.

    The home page of the JSGC's website now offers a link, labeled "The Proposed Assisted Reproductive Technologies Act"
    , which leads to the Report's introduction & summary, entitled "The Subcommittee and Legislative Process", quoted below.

    Let me put the Report into perspective, so you can understand both its importance, and also the "synchronicity" of its issuance now.

    As I review the development of events, consider
    the theory of synchronicity proposed by Swiss psychologist Carl Jung, described simply by Wikipedia:

    Synchronicity is the experience of two or more events which occur in a meaningful manner, but which are causally inexplicable to the person or persons experiencing them. The events would also have to suggest some underlying pattern in order to satisfy the definition of synchronicity as originally developed by Swiss psychologist Carl Jung.

    Carl Jung coined the word to describe what he called "temporally coincident occurrences of acausal events." * * * Jung introduced the concept in his 1952 paper "Synchronicity -- An Acausal Connecting Principle", though he had been considering the concept for almost thirty years.

    It differs from mere coincidence in that synchronicity implies not just a happenstance, but an underlying pattern or dynamic expressed through meaningful relationships or events.

    It was a principle Jung felt encompassed his concepts of archetypes and the collective unconscious, in that it was descriptive of a governing dynamic that underlay the whole of human experience and history -- social, emotional, psychological, and spiritual.

    Jung believed that many experiences perceived as coincidence were due not merely to chance, but instead, suggested the manifestation of parallel events or circumstances reflecting this governing dynamic. * * *

    On July 22, 2004, the Pennsylvania Superior Court issued an opinion in Ferguson v. McKiernan (PDF, 6 pages), 2004 PA Super 289, which derived from a trial court order docketed in Dauphin County, PA. A three-judge panel of the Superior Court framed the issues of the case as follows:

    This is an appeal from the Order docketed December 31, 2002, concluding that appellant, Joel L. McKiernan, is the legal father of twin boys born as a result of in vitro fertilization (IVF) and, therefore, is obligated to pay child support.

    Appellant argues the trial court erred by (1) ignoring the presumption of paternity of appellee’s then-husband; (2) not giving effect to the contract between the parties relieving appellant of any support obligation; and (3) not concluding appellee is estopped on the basis of fraud from claiming appellant is the father of the children. [Italics added.]

    The Superior Court held, in summary:
    While the trial court found appellee[mother]’s intentional deception despicable, it nevertheless considered the welfare of the innocent children involved, found appellant to be their legal father, and ordered him to pay child support. We agree.

    This is the important language in that opinion that related to assisted reproductive arrangements:

    The oral agreement between the parties that appellant would donate his sperm in exchange for being released from any obligation for any child conceived, on its face, constitutes a valid contract.

    Based on legal, equitable and moral principles, however, it is not enforceable.
    See Kesler v. Weniger, 744 A.2d 794, 796 (Pa.Super. 2000) (holding that a parent cannot bargain away a child’s right to support); see also Sams v. Sams, 808 A.2d 206 (Pa.Super. 2002) (holding, inter alia, that while child support Orders and private agreements for support may coexist, a child’s right to support cannot be bargained away by either parent, and any release or compromise is invalid to the extent it prejudices the child’s welfare).

    While we agree with the trial court that the oral agreement between the parties is not enforceable, we will nevertheless briefly address the issues raised by appellant. * * *

    As discussed above, the court did acknowledge the parties’ agreement, on its face, constituted a legal oral contract. Due to the fact the contract between appellee and appellant bargained away a legal right not held by either of them, however, but belonging to the subject children, the contract was not enforceable. See Kesler, supra.

    We agree with the trial court, “[a]lthough we find the [appellee’s] actions despicable and give the [appellant] a sympathetic hue, it is the interest of the children we hold most dear.” Trial Court Opinion, Evans, J., 12/31/02, at 9. There was no error.

    [Italics, reparagraphing & links added.]

    The PA Superior Court's decision was further appealed by the sperm donor to the Pennsylvania Supreme Court, which heard oral argument by the full Court on May 17, 2005 , as reported in an article entitled "Sperm donor fights order to support 2 children", dated May 20, 2005, by Barbara White Stack, published in the Pittsburgh Post-Gazette.

    The PA Supreme Court has not ruled in that appeal to date, more than two years after the full-court oral argument occurred.

    And then, on April 30, 2007, the PA Superior Court issued its decision in another sperm donor & parental responsibility case, also deriving in part from a ruling by a trial court in Dauphin County, PA.

    The ruling & opinion in Shultz-Jacob v. Jacob & Frampton (16 PDF, pages) attracted national attention. I wrote extensively about this case in my posting "Who's Your Daddy -- A Donor?" (05/11/07, as updated to 05/14/07), which you should read for further details.

    One article published about the Jacob case, entitled "Court orders sperm donor to pay support -- Death of father complicates complex case", by Paula Reed Ward, published Friday, May 11, 2007, in the Pittsburgh Post-Gazette, reported:

    Cases like these -- and others involving surrogacy and similar issues -- could more easily be settled, all the lawyers said, if the state Legislature would write laws to address them.

    Pennsylvania is one of only a handful of states that do not have laws to address the parental rights of sperm donors. * * *

    Where's the synchronicity?

    On Thursday afternoon, May 10th, after returning to my office, I tossed the York (PA) Dispatch newspaper bearing the headline, "Court: Sperm donor must pay child support", onto my desk, where it landed next to a draft final report, delivered on April 27, 2007 (three days before issuance of the Jacob decision) to members of the JSGC's Subcommittee on Assisted Reproductive Technologies, containing our recommended statute on just such matters.

    David Hostetter, Esq., Executive Director of the JSGC, told me that the staff was not aware of the pending issuance of the Jacob decision by the PA Superior Court when Staff Attorney Steve Rehrer, Esq. circulated the draft of the Report for final comments. David has mentioned to me since then, with a smile, about that amazing "coincidence".

    Or was it synchronicity?

    After nine formal meetings of this Subcommittee, held over a two-year period, while working in relative obscurity & with some wonder about relevancy of such a statute to a wider audience, that newspaper article landed next to our Subcommittee's proposed final report, which, if adopted, would create just such a law to meet the needs of Pennsylvanians for certainty in assisted reproductive technology (ART) situations.

    This week, the Subcommittee's finalized Report, including a proposed statute on ART matters, was issued; and it is now available online.

    This is the Report's Introduction:

    The Joint State Government Commission Subcommittee on Assisted Reproductive Technologies is comprised of representatives from the Commission’s Advisory Committees on Adoption Law, Decedents’ Estates Laws and Domestic Relations Law, as well as practitioners with experience in matters relating to assisted reproductive technologies and establishing the legal parentage of children born as a result of such technologies. In addition, consultants from the Pennsylvania Department of Health were invited to participate in the subcommittee discussions to provide guidance on current departmental practices and procedures.

    The impetus for establishing the subcommittee was the introduction of Senate Bill 408 (Printer’s No. 391) of 2005, which provided a statutory framework for surrogate parenting agreements, and the
    Senate Judiciary Committee public hearing on the legislation on March 14, 2005. During the March 14 public hearing, Senator Stewart J. Greenleaf, the Chair of the Judiciary Committee, requested that the Subcommittee on Assisted Reproductive Technologies review the subject matter and report back to the Senate Judiciary Committee with its recommendations.

    Lawrence A. Kalikow was named the chair of the subcommittee, which held its organizational meeting on April 22, 2005. The subcommittee subsequently met nine times to date: June 2005, August 2005, October 2005, December 2005, January 2006, April 2006, September 2006, December 2006 and January 2007. During the meetings, the subcommittee members thoroughly reviewed the
    Uniform Parentage Act (UPA), statutory law, case law, current Pennsylvania practice and Department of Health procedures.

    The subcommittee members agreed on a statutory framework for assisted reproductive technologies in Title 23 of the Pennsylvania Consolidated Statutes (the Pennsylvania Assisted Reproductive Technologies Act), consisting of general provisions and provisions regarding gestational agreements, set forth in this report as Subchapters A, B and C of proposed Chapter 59 of Title 23. The members also recommended that the Pennsylvania Supreme Court amend the Orphans’ Court rules to conform to the provisions of this chapter.

    Comments follow the sections of this chapter and explain the statutory provisions. Several comments are derived from the
    UPA comments and concepts raised in the UPA. The official comments may be used in determining the intent of the General Assembly.

    In addition, throughout this chapter, notes explain the source of the provisions and outline similarities and differences with the UPA.

    The members are continuing their discussions on provisions relating to children of assisted reproduction and records, which will constitute the foundation of a subsequent report and will add Subchapters D and E to proposed Chapter 59 of Title 23.

    In light of the complexity of the issues concerning assisted reproduction, the members recommended a review of the report of the
    President’s Council on Bioethics titled Reproduction and Responsibility: The Regulation of New Biotechnologies (March 2004).

    [Emphasis & links added.]

    The members of the Subcommittee who produced the Report & its recommended new law included, in addition to Chair Lawrence A. Kalikow, Esq., the following individuals: Craig B. Bluestein, Esq.; Frank P. Cervone, Esq.; Mitchell E. Chadrow, Esq.; Lisa W. Clark, Esq.; Mary Cushing Doherty, Esq.; Neil E. Hendershot, Esq.; Stephen R. Maitland (now Esq.); Albert Momjian, Esq.; Professor Robert Rains; & Hon. Leonard B. Sokolove. Consultants to the Subcommittee from the PA Department of Health were: Stephanie Michel-Segnor, Esq., & Stephen D. Tompkins, Esq.

    Whether there will be a law enacted to address the needs of Pennsylvanians involved in assisted reproductive technology matters now is up to the Pennsylvania Legislature, and then the Governor.

    If recent developments indeed do reflect synchronicity in the movement towards a new legal ART framework, then look now at the Legislative & Executive branches for further signs leading to implementation.

    Read or download the full Report here.

    Update: 06/25/08:

    An updated, final report on this subject was issued one year later by the
    Joint State Government Commission, completing the work of this subcommittee.

    For links and details, see: PA EE&F Law Blog posting "
    JSGC's Final Report on Assisted Reproductive Technologies" (06/25/08).

    Thursday, May 24, 2007

    Fuzzy Future of the Federal Estate Tax

    Estate planning advisors & fiduciary administrators know much about the previously legislated phase-up of the federal estate tax. But will those FET changes become a permanent phase-out as originally contemplated?

    Speculation, consternation, and even humor run rampant in discussions among lawyers & advisors about the future of the FET. A vision of the FET's future has been very fuzzy indeed, due to the continuing Congressional political stalemate despite constant pressure from a Republican Administration.

    Wikipedia's entry on "Effects of the Debate" simply states the FET's status through 2006:

    Since 2003, the top rate has been lowered from 49% by one percentage point per year; in 2006 the top rate was 46%. If the US Congress makes no changes to US tax law, the top rate will continue to drop by one percentage point per year until 2009 when the top rate is scheduled to be 45%; in 2010 all estates will be taxed at 0%; and in 2011 the estate tax will return at a top rate of 55%.

    Most experts expect that Congress will change the tax law before then. If the estate tax is eliminated, then unrealized capital gains would be subject to capital gains tax in order to justify the step up in basis in the hands of the new owner.

    Legislation to extend raising the unified credit (beyond year 2010) of the estate tax has passed the House of Representatives. It also passed in the Senate in June, 2006. Later when the conference committee added it to a bill to increase the minimum wage, the combined bill failed to garner 60 votes to invoke cloture in the Senate, and it failed to pass legislation to extend raising the unified credit (beyond year 2010) of the estate tax has passed the House of Representatives. It also passed in the Senate in June, 2006.

    Later when the conference committee added it to a bill to increase the minimum wage, the combined bill failed to garner 60 votes to invoke cloture in the Senate, and it failed to pass. * * *

    Then, in July, 2006, the New York Times reported that the Bush Administration unilaterally had ordered staff cuts of qualified IRS FET auditors "because far fewer people were obliged to pay estate taxes under President Bush’s legislation." See: "I.R.S. to Cut Tax Auditors", by David Cay Johnson, published July 23, 2006:
    The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

    The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after
    The New York Times was given internal documents by people inside the I.R.S. who oppose them. * * *
    Such personnel cuts were accomplished by mid-winter, 2007. See: "IRS Cuts Estate Staff As Returns Slow" (03/05/07), posted by the New York State Society of CPAs, which summarized an Associated Press article published March 2, 2007.
    The Internal Revenue Service completed a round of job cuts in recent weeks that thinned nearly 100 employees from its group overseeing gift- and estate-tax returns, The Associated Press reported Friday.

    The move was intended to keep pace with a shrinking number of estate-tax returns, according to the IRS, which promises to scrutinize estate-tax cases with the same care it has used in the past, the AP reported.

    But some tax attorneys say the staff reduction will stretch the agency thin and may result in fewer or less-accurate audits. They're concerned about the agency's plans to handle more estate-tax audits using IRS attorneys in states far from where the audits were filed, the AP reported. * * *

    Professor Gerry Beyer reported on the Wills, Trusts & Estates Prof Blog on May 14, 2007, in his posting entitled "2010 - An Estate Tax Odyssey", that two of the foremost estate & tax planning attorneys in the country (my characterization) actually had contemplated seriously the effects of no change in the scheduled FET phase-out:
    Jonathan G. Blattmachr (partner, Milbank, Tweed, Hadley & McCloy, LLP, New York) and Michael L. Graham (The Graham Law Firm, Dallas) have recently published their article entitled Thinking About the Impossible for 2010: No Estate Tax and Carryover Basis, Probate & Property, May/June 2007, at 12.

    Here is the conclusion of their article: Although most would probably place the chances at less than 50% that the year 2010 will bring a repeal of federal estate ax and its companion carryover basis, it is far from impossible. It seems prudent to plan for repeal of federal estate tax and carryover basis now by having a decedent's estate planning documents structured to maximize flexibility and savings. * * *
    Others, instead, were dealing with the continuing uncertainty & helplessness through humor. See: "2010 Brochure on Advanced Estate Planning", posted on March 23, 2007, by Professor Beyer; and a Wall Street Journal article, entitled "Estate tax humor plays on foggy future", by Arden Dale of Dow Jones News Service, published on April 9, 2007 & reposted in full online by (among others) The Repository (Canton, OH).
    “We can help! Our team of experts will guarantee that you pass away in 2010 and avoid federal estate tax.”

    Gallows humor about estate taxes — like this Internet spoof — is in vogue these days because changes in the so-called death tax have left even savvy financial planners puzzled. Meanwhile, the hope of a total repeal is now dim because of the shift in power to Democrats in Congress. * * *

    A boom in trusts -- meant to reduce or avoid the gift tax -- has been one result of the fog. People once willing to whittle down their taxable estates by giving away money to friends and family now aren't so willing. The logic: Don't give away money if the estate tax is about to be repealed. * * *

    Yesterday, while reading a well-documented, up-to-date report made available to the members of the American College of Trust & Estate Counsel (ACTEC), I thought that the FET's fuzzy future became just a bit more focused.

    Ronald D. Aucutt, Esq. -- a past President of ACTEC, a lawyer with indisputable credentials & recognitions, and an author -- wrote an excellent analysis, filled with weblinks, about recent Congressional attention on the very fuzzy future of the federal estate tax, in the setting of negotiations on a 2008 Fiscal Year supplemental budget appropriation.

    With his express permission (in exchange for my gratitude & your learning), I repost his article (while he & his law firm,
    McGuire Woods, LLP, retain full copyright).

    Does your vision of the FET's fuzzy future clear up just a little bit, too, after you read Ron's report?


    We dare not take our eyes off Congress for a minute! No sooner was Capital Letter Number 3 (May 7, 2007) posted to the website, but Congress took the subject matter of that Capital Letter to another level of interest and attention.

    On May 9, 2007, when the Senate was considering the appointment of Senators to the House-Senate conference on the Fiscal Year 2008 budget resolution,
    Senator Jon Kyl (R-AZ) offered the following motion:
    That the conferees on the part of the Senate on the disagreeing votes of the two Houses on the concurrent resolution S. Con. Res. 21 (the concurrent resolution on the budget for fiscal year 2008) be instructed to insist that the final conference report include the Senate position to provide for a reduction in revenues, sufficient to accommodate legislation to provide for permanent death tax relief, with a top marginal rate of no higher than 35%, a lower rate for smaller estates, and with a meaningful exemption that shields smaller estates from having to file estate tax returns, and to permanently extend other family tax relief, so that American families, including farmers and small business owners, can continue to enjoy higher after-tax levels of income, increasing standards of living, and a growing economy, as contained in the recommended levels and amounts of Title I of S. Con. Res. 21, as passed by the Senate.

    153 Cong. Rec. S5838
    (daily ed. May 9, 2007).
    In explaining the motion, Senator Kyl said: “While the motion does not specify that amount, an exemption of $5 million per estate indexed for inflation is what is contemplated.” Id. at S5839.

    Senator Kent Conrad (D-ND)
    , the chairman of the Senate Budget Committee, opposed the Kyl motion, on the grounds that it was not paid for and that the subject was already covered by the Baucus amendment (discussed in Capital Letter No. 3), which he as a Senate conferee would be committed to support. Id.

    Nevertheless, Senator Kyl’s motion passed by a vote of 54-41, with eight Democrats in favor and no Republicans opposed. The binding effect of such a motion to “instruct” conferees, however, is unclear. Even provisions “sufficient to accommodate” the desired legislation would still leave the implementation up to the tax-writing committees.

    Then on May 17, 2007, the House and Senate approved the budget resolution with intriguing references to the estate tax. The provisions of the budget resolution applicable to the House of Representatives (
    section 303(b)(2)) permit
    one or more bills, joint resolutions, amendments, motions, or conference reports that provide for tax relief for middle-income families and taxpayers and enhanced economic equity, such as extension of the child tax credit, extension of marriage penalty relief, extension of the 10 percent individual income tax bracket, modification of the Alternative Minimum Tax, elimination of estate taxes on all but a minute fraction of estates by reforming and substantially increasing the unified credit, extension of the research and experimentation tax credit, extension of the deduction for State and local sales taxes, and a tax credit for school construction bonds … provided that such legislation would not increase the deficit or decrease the surplus for the total over the period of fiscal years 2007 through 2012 or the period of fiscal years 2007 through 2017. H.R. Rep. No. 110-153, 110th Cong., 1st Sess. 27 (2007).
    With respect to the corresponding language of the budget resolution applicable to the Senate (section 303(a)), an overview prepared by the staff of the Senate Budget Committee stated:
    The Conference Agreement supports middle-class tax relief, including extending marriage penalty relief, the child tax credit, and the 10 percent bracket subject to the pay-as-you-go rule. It also supports reform of the estate tax to protect small businesses and family farms. House provisions include additional procedural protections to help ensure fiscal responsibility.
    The proviso that the contemplated tax relief “not increase the deficit or decrease the surplus for the total over the period of fiscal years 2007 through 2012 or the period of fiscal years 2007 through 2017” – what the Senate Budget Committee’s overview refers to as “procedural protections to help ensure fiscal responsibility” – can fairly be interpreted to mean that under the budget resolution the Ways and Means Committee will not include any tax relief provisions that are not “paid for” through increases of other taxes or projected budget surpluses.

    This will be an especially hard standard to meet in view of the current deficit that the budget needs to overcome and the commitment of Ways and Means Committee
    Chairman Charlie Rangel (D-NY) and other Members of Congress to give priority to the very expensive task of fixing the individual alternative minimum tax.

    Hence, no legislation is guaranteed by these provisional actions and statements. But “our” tax – the estate tax – has certainly received more attention in the first five months of the 110th Congress than most of us would have predicted.

    For an even more extensive analysis about the FET's future, also written by Ron, offering greater background & wider options, see the article publicly posted on his law firm's website, entitled "Congressional Clues about The Future of The Estate Tax" (05/21/2007).

    Update: 06/01/07:

    I noticed a cross-link to this PA EE&F Law Blog entry, posted on the home page of Leimberg Information Services, as follows:
    Blog post by Pennsylvania attorney Neil Hendershot cites resources on the future of the federal estate tax, including the full text of a commentary by Ronald Aucutt entitled "Federal Estate Tax in the 2008 Budget Resolution."
    Update: 03/11/07:

    For updates, since the date of this posting, on the topic of Congressional consideration of revised wealth transfer tax legislation, see: PA EE&F Law Blog postings:
    For related postings on this Blog about Congressional reconsideration of wealth transfer taxes, see articles under the label "Federal Estate Tax".

    Wednesday, May 23, 2007

    Trusts & Estates ... and the FBI: Pt. II

    Why would the Federal Bureau of Investigation become involved in a trust or estate matter, which is primarily litigated by parties in a state probate court? The general answer is: Where there is significant financial fraud alleged to constitute a crime, and where interstate activities are involved, the FBI could become involved.

    Statements by the FBI on its website and its past activities might shed light on the reason for its involvement in the Estate of Peter J. Karoly, deceased, and its pending "will contest", which I described in my prior posting,
    Trusts & Estates ... and the FBI: Pt. I. (May 22, 2007).
    The FBI's website provides tremendous information regarding its mission, activities, & past cases. A search of its archived cases reveals very few investigations prior to this decade that related to "estate", "trust", "probate", or "fiduciary" matters. But that appears to be changing, with the FBI's greater emphasis on "white-collar crime":

    Fraud — the art of deliberate deception for unlawful gain — is as old as history; the term "white-collar crime" was reportedly coined in 1939 by Professor Edwin Sutherland and has since become synonymous with the full range of frauds committed by business and government professionals. Today's con artists are more savvy and sophisticated than ever, engineering everything from slick online scams to complex stock and health care frauds.
    "Welcome to the FBI's FOIA Website" indicates eight major areas of FBI jurisdiction, including "White-Collar Crime". In its planning, the FBI professes a strategic objective to "reduce the level of significant white collar crime"; and it makes a promise:
    The FBI will continue its successful efforts in the white collar crime arena by using its expertise, broad criminal investigative resources, and strong relationships with regulatory agencies to maintain public confidence in the country’s financial institutions and markets, ensure the integrity of government expenditures of taxpayer funds, and protect individuals and businesses from catastrophic economic loss.
    The FBI's "Strategic Plan on "White-Collar Crime" addresses some components of "white-collar crime" that could relate to fiduciary matters:
    Where such financial fraud might occur in the setting of a fiduciary relationship, such as a trust or estate, and where there is interstate activity, the FBI can become involved. The interstate activity could be as innocuous as transmittal of information by U.S. mail, or by electronic communication across state lines using fax or email, which can invoke federal criminal charges of mail fraud or wire fraud.

    These are some recent representative cases that I found on the FBI's website archive (somewhat edited from that source):

    • Mark J. Avery Pleads Guilty to $52 Million Dollar Wire Fraud and Money Laundering Scheme (Eastern District of Alaska, March 6, 2007) – Defendant pleaded guilty in federal court in Anchorage to five counts of wire fraud and ten counts of money laundering in defrauding the May Smith Trust of over $52 million dollars. The plea agreement requires Avery to serve a sentence of imprisonment that ranges from 14 to 17 and a half years and to pay restitution to the May Smith Trust in the amount of $52.125 million dollars. The prosecution was the result of a joint investigation conducted by the United States Attorney’s Office, Federal Bureau of Investigation (FBI) and Internal Revenue Service-Criminal Investigation (IRS-CI), and was based on evidence obtained from the simultaneous execution of search warrants for the businesses of Avery in February, 2006. As a result of those searches investigators of the FBI and IRS-CI came into possession of thousands of pages of documents detailing Avery’s breach of fiduciary duty as Trustee to the May Smith Trust and May Wong Smith.
    • Legal Secretary Sentenced for Embezzling $159,000 from Clients of KC Law Firm (Western District of Missouri, February 27, 2007) -- A legal secretary employed by the law firm of Armstrong Teasdale LLP was sentenced in federal court today for embezzling more than $159,000 from clients of the firm. Moyer pleaded guilty to bank fraud. Moyer admitted that she wrote 113 unauthorized checks on four accounts of estate-clients of Armstrong Teasdale at Bank of America and UMB Bank over a nearly three-year period, forging the signatures of her supervisor and the conservators, in the total amount of $159,120. Moyer had access to five accounts for four client-estates of Armstrong Teasdale but did not have signatory authority on any of the accounts. When directed to do so, Moyer would generate checks to pay necessary expenses associated with the estates, then give the checks to her supervisor or the conservators for signature. Either she or the conservators would mail the checks to the payee.
    • Former Accountant Sentenced to 63 Months Imprisonment for Multimillion Dollar Embezzlement Scheme (Eastern District of California, October 13, 2006) -- A defendant was sentenced to 63 months imprisonment for the embezzlement of over $4 million from various clients. The defendant previously pled guilty to wire fraud in connection with this crime on February 3, 2006.
    • Former lawyer found guilty of mail fraud involving scheme to defraud elderly clients (FBI's Washington Field Office, July 27, 2006) -- A former lawyer was found guilty of mail fraud on 13 counts of mail fraud relating to a scheme that began in 1998 to defraud elderly clients and an estate of their money. The jury also found that the defendant should forfeit $385,000 to the government. At sentencing, the defendant faces a maximum of 20 years in prison and a fine of $250,000 and restitution of all victim losses.
    • Theft from an Elderly Client (Minneapolis MN, May 25, 2006) -- A former investment executive for a central Minnesota financial services company was sentenced today in U.S. District Court in Minneapolis for stealing $410,000 from an elderly client. The Defendant pled guilty in January of 2006 to one count of wire fraud. At his guilty plea, Davis admitted that while employed as an investment executive by PrimeVest Financial Services, Inc., an investment company located in Little Falls, Minnesota, he fraudulently obtained a check from his elderly uncle in the amount of $85,000. Davis used the funds for his own purposes, including personal business opportunities, without his uncle’s knowledge or permission. In addition, Davis acknowledged unlawfully converting other funds, resulting in a $410,000 loss to his uncle.
    • Miami Attorney Indicted for Misappropriating at Least $13.5 Million in Client Settlement Money (Southern District of Florida, May 23, 2006) -- An Indictment was unsealed charging a defendant with forty-one (41) counts of mail fraud in connection with his misappropriation of $13.5 million of settlement monies from clients’ trust accounts. The Indictment also contains a criminal forfeiture provision seeking a money judgment for $13,500,000.
    • Woman Charged with Scheme to Defraud Investors (Southern District of Florida, June 22, 2005) -- Defendant was charged by Information in federal court in West Palm Beach, Florida with one count of wire fraud, in violation of Title 18, United States Code, Section 1343. As alleged in the Information, Williams defrauded certain investors by telling them that the money they invested with her would be used to purchase the contents of estate sales, which contents could be quickly resold for a substantial profit. In fact, however, Williams did not use the investors' money to purchase estate sales items. Instead, Williams used money that had been paid to her by the investors for her own personal use and to operate her own company, the "Betty Series," which was in the business of promoting women's surfing, skateboarding and snowboarding competitions.
    • The Case of the Living Dead: Missouri Funeral Home Director Pleads Guilty to Faking Death Claim (FBI Kansas City Field Office, January 10, 2005) -- "The elderly couple could hardly believe their ears. On the other end of the line, their insurance company kept insisting they were dead. The company's records showed they'd both died three months earlier, within weeks of each other. It had already paid out nearly $16,000 for their funerals. So began a bizarre case for the FBI and its partners..." -- They reported the incident to police. After a joint investigation by the Putnam County Sheriff’s office, the Missouri Attorney General’s office, and our office in Kansas City, Newman pled guilty to five counts of mail and wire fraud. He admitted filing fake death claims for 58 people.
    A true & tested fiduciary need not be fearful, though, when considering the motto of the FBI: "Fidelity, Bravery, Integrity". Just stick to it.

    * * *
    "The FBI will continue to identify, investigate and work to prosecute those who would take advantage of the elderly and the seriously ill."

    Dennis M. Lormel, Chief, Financial Crimes Section, FBI, testifying before the United States Senate Special Committee on Aging, on September 10, 2001, about "Fraud Against the Elderly".
    Update: 05/23/07:

    The New York Probate & Litigation Blog, authored by Philip M. Bernstein, Esq., noted my posting with his own, dated May 23, 2007, entitled "FBI Interested In Will Contests".Update: 09/26/08:

    In the Karoly case, on September 25, 2008, the U.S. Attorney's Office for the Eastern District of Pennsylvania announced issuance of federal criminal indictments against three defendants. See: PA EE&F Law Blog posting "Attorney in PA Indicted for Will Fraud" (09/26/08).

    Update: 04/07/13:

    The Orphans' Court Division of the Court of Common Pleas of Northampton County issued a ruling that the contestants to the wills did not meet the required burden of proof to overturn the questioned wills. No federal charges were pursued by the Justice Department on such matters. See: PA EE&F Law Blog posting Karoly Estates Will Forgery Case Ruling (04/07/13).