Life Cycle of the Estate 101

Allison C. Treitler

Estates and Special Investments

Harvard University

Outline

• Review the probate process (Massachusetts) • Trusts

• Protecting charitable interests during the

probate process/ trust administration • Questions

How do estates get administered?

• Probate Courts • In other states, Surrogate’s

Court, Orphan’s Court, etc. • Laws differ by state and by

court • Our example: Massachusetts

• Massachusetts Uniform Probate Code (2012)

• Massachusetts Uniform Trust Code (2012)

Massachusetts Uniform Probate Code

• Prior to 2012, estates were heavily supervised by the probate court

• The adoption of the Massachusetts Uniform Probate

Code (“MUPC”) in 2012 provided for two options when filing: • INFORMAL PROBATE (for simple estates) • FORMAL PROBATE (more closely resembles the old

process)

Informal Probate - Overview

• Where is it appropriate? • Simple estate, agreement among parties is anticipated • All conditions for Informal Probate are met

• Advantages:

• Personal Representative (PR) can be appointed more quickly • Limited court supervision – less time and expense

• “In and out” model for use of the probate court

Informal Probate - Overview

• Disadvantages: • Less protection for PR

• Does not result in judicial allowance of will – lack of finality

• No formal determination of heirs

• Estate open to challenge for up to three years (interested party can object to probate by filing a Formal Probate petition)

Formal Probate - Overview

• Where is it appropriate? • Disagreement among parties is anticipated • Any condition for Informal Probate is not met, e.g.:

• Original will cannot be found • Heirs or devisees cannot be located • Doubt as to which will should be filed, marks on will • Minors or incapacitated persons are not represented by guardian

or conservator

• Advantages:

• More familiar to practitioners because it’s similar to old procedure • More protection for PR

• Judicial determination of heirs • Judicial allowance of the will

Informal Probate - Process

1. Mail notice to interested persons at least 7 days before filing 2. File the petition for Informal Probate in the county of decedent’s

domicile, with all required documentation, including: • Original Will and Codicil(s) • Death Certificate • Court Form (for Informal Probate and Appointment of PR)

3. Magistrate may allow will to Informal Probate and appoint PR 4. Serve notice by publication within 30 days (court will tell you

where to publish)

Informal Probate - Process

5. Administer estate • Collect and manage assets • Make distributions • Sale of property, if applicable • File estate tax returns and income tax returns

6. File inventory within 30 days of appointment, or mail to interested persons 7. Have account(s) approved, if desired 8. Obtain Decree and Order of Complete Settlement or file a Closing Statement

Informal Probate - Notes

• Proceeding can be converted to Formal Probate at any time • Due to objection • At PR’s discretion

• Informal Probate or Appointment of PR can be contested at any time within the later of: • One year after probate; or • Three years after death

Formal Probate - Process

1. File the petition for Formal Probate in the county of decedent’s domicile, with all required documentation, including:

• Original Will and Codicil(s) • Death Certificate • Court Form (for Formal Probate and Appointment of PR,

and possibly for Special Personal Representative)

• A Formal Probate proceeding is litigation to determine whether decedent left a will and may include a request for the appointment of a PR.

Special Personal Representative

• Temporary fiduciary with limited power • Can be appointed up to 90 days at a time to preserve estate or ensure proper

administration • Appointment may be sought because of delay in in appointing permanent PR,

e.g., because of will contest or the time that must elapse for notice in formal proceedings • May need to secure home, run business, collect rents, etc. • May also be appointed for a very specific purpose:

• Access safe deposit box to find will • Obtain medical records • Make funeral arrangements

Formal Probate - Process

2. Court will issue a citation, which includes a “return date.” The petitioner (usually the PR) must give notice to all interested parties 14 days before the return date. In addition, publication must occur at least 7 days before the return date. 3. Complete return of service. 4. After the return date, the will can be allowed and the PR appointed administratively, so long as no appearance has been filed. (If appearance has been filed, the appearing party has 30 days to file objections).

Formal Probate – Who can object?

• Heirs • Spouse • Any devisee under a prior will whose devise is

adversely affected by will be offered for probate

Formal Probate – Grounds for Objection

• Will was not executed properly (forgery, improper witnessing, etc.)

• There is a later will • The testator did not understand that she was signing a last will • The testator was not of sound mind at the time of execution; or • The alleged will was procured through fraud or undue influence

5. Resolve conflicts, if any. 6. Administer estate

• Collect and manage assets • Make distributions • Sale of property, if applicable • File estate tax and income tax returns

7. File inventory within 30 days of appointment, or mail to interested persons 8. Have account(s) approved, if desired 9. Obtain Decree and Order of Complete Settlement or file a Closing Statement

Formal Probate - Process

Decree and Order of Complete Settlement vs. Closing Statement

• Decree and Order • At the end of administration, PR can file a final account,

inventory and petition for Order • The court can allow the final account and issue a Decree and

Order of Complete Settlement if: • Creditor period has expired • Final account and Petition for Complete Settlement filed • All interested parties have assented to the account or waived

notice • Proceeding is unopposed after time required for notice has

expired

Decree and Order of Complete Settlement vs. Closing Statement

• Closing Statement • At the end of administration, PR can file a closing statement,

which cannot be challenged after one year (except for exceptional circumstances, such as fraud)

Trusts

• Massachusetts Uniform Trust Code (“MUTC”) was adopted in 2012, months after the MUPC

• Much like the MUPC, it was intended to provide help

from the court where necessary, but provide some freedom and flexibility from constant court oversight

• Another goal: put testamentary and inter vivos trusts

on the same footing

Trusts Pre-MUTC

Pre-MUTC: • Testamentary trusts were supervised in a manner

similar to estates • Accounts filed annually with the court • Costly, time-consuming

• Inter vivos trusts virtually free from court oversight

Trusts Post-MUTC

• Requirements for irrevocable trusts are uniform, whether testamentary or inter vivos

• Trustees have a duty to keep beneficiaries informed,

rather than make court filings (no more accountings required to be filed in court for post-MUTC trustees)

• Greater flexibility in what trustees and beneficiaries can

agree to without court approval

Trustee Duties under the MUTC

• Notify “qualified beneficiaries” of trust’s existence • Within 30 days of becoming trustee or trust becoming

irrevocable, whichever is later

• Keep qualified beneficiaries reasonably informed about trust administration

• Send accounts to distributees and permissible

distributees of trust income or principal annually and at trust’s termination

• Must also sent to any qualified beneficiaries who request

Qualified Beneficiaries

• Qualified beneficiaries: distributees or permissible distributees of income or principal and persons who would be distributees or permissible distributees if the trust were to terminate on the date qualification is being determined

Non-Judicial Settlement Agreements under the MUTC

• Interested parties may enter into a binding settlement agreement with respect to any matter involving a trust to the extent that it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court

• “Interested parties” – persons whose consent would be required to

achieve a binding settlement were settlement to be approved by the court

• Examples: • Interpretation or construction of trust terms • Approval of trustee’s accounting • Resignation and appointment of trustee • Determination of trustee’s compensation

Protection of Charitable Interests under Trusts and Wills

1. Read between the lines • Look for “red flags” in documents you receive

• Is this a formal estate? • Anything in the will/trust obviously of concern (i.e.

important relatives left out?) • You may already know of potential issues from your

interactions with the donor • When in doubt, speak to the estate fiduciary directly

2. Monitor court filings and be mindful of deadlines • You will have limited time to respond to court pleadings

3. Request documents to which you are entitled

Protection of Charitable Interests under Trusts and Wills

4. Keep in touch with fiduciaries and ask for periodic updates 5. Consult your OGC’s office and even engage outside counsel

where necessary to protect charity’s interests, e.g. for: • Will contests • Unresponsive fiduciaries • Suspected foul play on part of fiduciary • (This will obviously be a judgment call. Many

considerations come into play here)

Case Study 1

Barry Black left a trust that became irrevocable at his death. The trust provides net income and principal for health, maintenance and support to his wife Belinda for life, remainder to your charity. Based on your many years of experience meeting with Barry, you know that Belinda hates your charity and doesn’t want it to receive a penny. Belinda and State Bank are co-trustees. What steps might you take to protect the interests of your charity here?

Case Study 1

• First, don’t panic. There is a corporate trustee to watch distributions, and the distribution standard for Belinda is pretty clear.

• Determine whether you are a qualified beneficiary (you

are). Request annual statements – you are entitled to them. Review them.

• When the trust terminates, request a final statement.

Case Study 2

Amanda Allen recently died, and you receive a Notice of Petition for Formal Probate and Appointment of Personal Representative. Amanda’s surviving spouse, Alex, is seeking to probate her 2013 will and be appointed as PR. A copy of the will is attached, and it provides as follows: • ¾ of her estate to Alex • ¼ to your charity

• You know from many years of experience with Amanda that she

has four adult children from a prior marriage. • What to do?

Case Study 2

• Note the potential red flag – petition is for Formal Probate

• Call attorney (signature will be on petition)

• Might be able to just talk through – not necessarily a contentious situation

• Request a copy of the full petition • How much $ is at stake?

• Watch court file – does anyone file an appearance? • Consult your OGC with concerns

Case Study 3

Calvin Carter, a donor that you knew very well, dies recently at the enviable age of 96. You had a great relationship with Calvin, and he loved your charity – he was a generous donor for the last 30 years of his life. He told you many times that your charity would benefit from a generous gift at his death. He even gave you a copy of his 2010 will, which left your charity a gift of $10 MM. You saw him very little the last couple of years. When you last saw him at a lunch 2 years ago, he didn’t look great, and his adult granddaughter was hovering over him. You receive a Petition for Informal Probate along with a copy of a will signed 2 months ago. His will leaves everything to his grandchildren, and to your charity (along with three other charities) if none of his grandchildren survive him. • What to do? • Does your answer change if Mr. Carter was of more modest means, and the original

bequest to your charity was $5,000?

Case Study 3

• What are your concerns? • Incapacity at the time the most recent will was executed • Undue influence?

• Consult your OGC, others at the university who knew Mr. Carter,

etc. • Speak to representatives of other charities • Non-financial concerns? • Informal probate does not mean that you cannot object – you can

object by filing a petition for Formal Probate

Case Study 4

You receive notice from the trustee that the trust of Hilda Higgins became irrevocable at her death. The trust leaves “that amount reasonably necessary to care for Petie the Parrot for life,” remainder to your charity. In addition, the trustee shall receive “reasonable compensation” so long as he cares Petie, who has a life expectancy of 25 more years. Your charity receives the rest of the trust property outright. The trust property is values at $6 MM. • You are thrilled with the gift, but worried about how much may go

to the care of the parrot and to the trustee. After all, 25 years is a long time.

• How do you proceed?

Case Study 4

• Consult the OGC • What does trustee consider reasonable? Do you agree?

• If yes, a non-judicial settlement agreement is a good idea here.

• If no, may need to engage counsel

Thank you.

Questions?