Thursday, October 30, 2008

Notice Requirements by PA Trustees

On October 29, 2008, Vincent F. Lackner, Jr., Esq., posted on the Pennsylvania Bar Association's "Probate & Trust Law Division Listserv" a helpful guide regarding trustee notice requirements under the present form of the Pennsylvania Uniform Trust Act.

Vince is an excellent attorney, and also the founder & President of The Lackner Group, Inc., of Pittsburgh, PA, which produces professional-level software supporting estate and trust administration in Pennsylvania and many other states. See: PA EE&F Law Blog posting "Fiduciary Administration Software" (12/14/07).

With his permission, I repost his message to lawyers, as edited & reformatted by me.

Clarification of Notices
Required under the PA Uniform Trust Act

by Vincent F. Lackner, Jr., Esq.

I have recently received some clarification relating to Section 7780.3 of the Pennsylvania Uniform Trust Act, 20 Pa.C.S. §7701 et seq. ("Duty to Inform and Report").

This act was effective November 6, 2006, but some notice provisions were effective two years thereafter. That date now approaches.

Since the enactment of the PA UTA, an omnibus amendment, in the form of Senate Bill 1203 ("SB 1203"), would correct and amend Section 7780.3 (and other sections) in several important respects. Section 7780.3(l)(2) in particular (see below) would be retroactive to November 6, 2006, if and when passed.

Section 7780.3 requires that trustees provide a specific notice, as spelled out in 7780.3(i), to certain people within a certain period of time, depending on:
  • whether the trust is revocable or irrevocable,
  • whether the settlor of the trust has died or been adjudicated incapacitated, and
  • when the settlor died or was adjudicated incapacitated (before 11/06/2006 or on/after 11/06/2006).
There was a two-year grace period under the original PA UTA, however, for trusts where the settlor died (or was adjudicated incapacitated) before November 6, 2006. In these cases, the deadline to give notice will be November 6, 2008 (just two days after next week's election!).

The dilemma is that SB 1203 would affect compliance with this deadline of November 6, 2008, but will clearly not be effective until after November 6, 2008.

During the past few days I have been in contact with lawyers involved in either drafting the Pennsylvania Uniform Trust Act or lecturing on this topic for the Pennsylvania Bar Institute during the past two years.

The subject is inherently complex, and there are some ambiguities that are largely unavoidable. Based on my recent conversations, however, I've tried to draw some "bright lines" that may help others who are trying to comply with the November 6, 2008 deadline (and beyond).

Interestingly, Section 7780.3(i) does not give a name to the required "notice". The consensus seems to be that "Notice of Trust Administration" would work as well as anything else. It would provide symmetry with the PA Supreme Court Orphans' Court Rule 5.6(a) requirement for a "Notice of Estate Administration". Also, it is generic enough to encompass recipients of all classes (not just "current beneficiaries").

The potential recipients of this notice include the following. All relationships are to the settlor's estate (#1), the settlor (#2, 3, 5), or the trust (#4):
  • #1 Personal Representative
  • #2 Spouse (or Spouse's Guardian*)
  • #3 Children (if at least 18 years of age) or Children's Guardian*, if any
  • #4 Current Beneficiary: "A person 18 years of age or older to or for whom income or principal of a trust must be distributed currently or a person 25 years of age or older to or for whom income or principal of a trust may, in the trustee's discretion, be distributed currently" (emphasis added).
  • #5 Guardian*
* Guardian is defined in Section 7703 as "[a] person other than a guardian ad litem who is appointed by the court to make decisions regarding the property of an individual."

Note: If a child is not yet 18 and has no court-appointed guardian, then no notice is required in connection with that child.

So, here is my attempt at some "bright lines" in areas that are not explicit under the UTA:
  • A. Inter Vivos Revocable Trust: Even after the decedent has died, the rules for "Revocable Trusts" continue to apply.
  • B. Inter Vivos Irrevocable Trust: Any inter vivos trust that is not "Revocable" as defined under the PA UTA.
  • C. Testamentary Trust: Does not exist until funded. Thus, for purposes of notice, it is treated as equivalent to an "Irrevocable Trust".
Dependent upon the types of trusts, these are the notices required for each:

Inter Vivos
Revocable Trust
Recipients Deadline

Settlor Adjudicated Incapacitated Before 11/06/06 #5 11/6/2008

On/after 11/06/06 #5 W/i 30 days after trustee learns of adjudication

Settlor Died Before 11/06/06 ** #4 11/6/2008

On/after 11/06/06 #1, 2, 3, 4 W/i 30 days after trustee learns of death

Inter Vivos
Irrevocable Trust

Settlor Adjudicated Incapacitated Before 11/06/06 #4 11/6/2008

On/after 11/06/06 #4 W/i 30 days after trustee learns of adjudication

Settlor Died Before 11/06/06 #4 11/6/2008

On/after 11/06/06 #4
W/i 30 days after trustee learns of death


Settlor Died Before 11/06/06 #4 11/6/2008

On/after 11/06/06 #4
W/i 30 days after the trust is first funded

** Existing Section 7780.3(l)(2) has a cross-reference in it to 7780.3(c) (inter vivos Revocable Trusts). This cross-reference was apparently an error. It is safe to proceed as if that error has already been corrected (via the still-pending SB 1203). Section 6(a)(2) of SB 1203 explicitly states that this change shall be "retroactive back to November 6, 2006."

When, under proposed SB 1203, the reference to 7780.3(c) would be removed from 7780.3(l)(2), then the time period for Revocable Trusts for pre-11/06/2006 decedents would be covered by a combination of the following:
  • 7780.3(f) (catch-all provision) (notice only to current beneficiaries)
  • 7780.3(l)(3) (specifies that the notice under 7780.3(f) need not be completed until 11/06/2008).
Two further notes:
  • Beneficiary Ages. Trustees need to monitor the ages of beneficiaries, so that required notices can be sent to beneficiaries once they become "current" (i.e., turn 18 or 25).
  • Change of Trustee. Under Section 7780.3(g) (as proposed to be revised under SB 1203), when there is a change in trusteeship, the trustee must provide written notice of this change to: (a) the current beneficiaries (if the Settlor has died or been adjudicated incapacitated) or (b) the Settlor (otherwise). This notice must include the trustee's name, address, and telephone number.
Vince's article adds to the guidance provided in a recent online course (No. OL-1088) offered by the Pennsylvania Bar Institute entitled "Uniform Trust Act Notices: Only Five Months To Go!" See also: Posting by Patti Spencer, Esq., "PA UTA - Required Trust Notices Deadline Approaches" (09/01/08).