While giving a person flexibility in distributing their property, trusts do have some limitations. One of those limitations is known as the "Rule Against Perpetuities." Happily for many, Pennsylvania abolished that law in 2006 by passing Title 20 PSA § 6107.1. However, the new law only applies to interests created on or after January 1, 2007.
For trusts created before that date, the law contained in Section 6104 et seq of Title 20 still stands. It provides that any interest must vest within 21 years after lives in being. The intention of the law was to limit trusts from continuing forever. History and experience have established that the rule is not necessary. For those interested in knowing about the law in detail, click here. For others, you need only be aware that a trust created before January 1, 2007 should not continue for 21 years after the last life in being at the time the trust was created. That may limit trust bequests to great grandchildren who were not alive at the time a trust was established.
The Pennsylvania Superior Court recently decided a case where that law came into play. It was Re: In the Matter of Estate of George McFaddden, 2014 PA Super 203, decided September 18, 2014.This case dealt with a trust that was established in 1929 before the stock market crash. It is always a good idea to enlist the help of an experienced attorney when drafting a trust, because the "Rule Against Perpetuities" is one of several issues that confront the drafter. Trusts can be very useful, and are sometimes essential, but should be drafted by someone with the appropriate experience.
Stay well until the next post:
Bob Gasparro, Esq.
Sunday, December 21, 2014
Philadelphia Court Gives Priority to Outstanding Child Support Claims Over Distributions to Beneficiaries
A recent Philadelphia case focused on the liability the executrix may face for improper distribution of the estate proceeds. It also considered exceptions to the "spendthrift provisions" contained in a will or trust. In this case, Roy Creamer Sr., deceased, had a will attempting to distribute the proceeds of his house to his son Roy Jr., who also had an outstanding $16,289.87 child support obligation. The mother of the children who were owed support filed a formal claim against the estate, saying that the children were entitled to the bequest before Roy Jr. Roy Sr., the decedent, also failed to provide for his wife in his will, so she filed a spousal election against the estate.
The executor initially dishonored the claim for child support, stating that only a creditor of the decedent can bring a claim against his estate, and that a creditor of a beneficiary had no standing to bring any claim at all. Furthermore, said the executor, the will contained a "spendthrift provision" which protected claims of beneficiaries against creditors.
Note #1: each of our clients, and many others who own a will drafted by an attorney, will notice a clause under "Powers of the Personal Representative" which permit them to make payments to any beneficiary without any duty to see to the proper allocation or application of the funds paid. In many cases a trust will contain a provision that the trustee may shield the principle from claims of creditors of the beneficiary. These are similar to "spendthrift provisions."
Note #2: No matter what a will says, a decedent may not disinherit a spouse. Under Title 20, Section 2203 of Pennsylvania laws, a spouse is entitled to at least 1/3 of the estate. However, in making this election, life insurance, annuities and other payments outside of probate are taken into consideration in computing the 1/3 share.
In this case the Philadelphia Orphans Court refused to approve the executor's proposed distribution of the estate. The court stated that the children who were owed child support had rights to contest the distribution of the estate to the beneficiary who owed the support obligation. The court went on to say that they also might rights against the spouse taking the 1/3 elective share, and the children might have a right to have a guardian appointed for them to pursue their claim. The court postponed the settling of the estate until the parties determined if there was enough money in the estate to pay the child support obligations, and to see if the parties could resolve the matter without resort to litigation. The case is In re Estate of Creamer, Court of Common Pleas of Philadelphia 14-1760, and the 16 page decision was published on September 30, 2014.
Stay well until the next post:
Bob Gasparro, Esq.
The executor initially dishonored the claim for child support, stating that only a creditor of the decedent can bring a claim against his estate, and that a creditor of a beneficiary had no standing to bring any claim at all. Furthermore, said the executor, the will contained a "spendthrift provision" which protected claims of beneficiaries against creditors.
Note #1: each of our clients, and many others who own a will drafted by an attorney, will notice a clause under "Powers of the Personal Representative" which permit them to make payments to any beneficiary without any duty to see to the proper allocation or application of the funds paid. In many cases a trust will contain a provision that the trustee may shield the principle from claims of creditors of the beneficiary. These are similar to "spendthrift provisions."
Note #2: No matter what a will says, a decedent may not disinherit a spouse. Under Title 20, Section 2203 of Pennsylvania laws, a spouse is entitled to at least 1/3 of the estate. However, in making this election, life insurance, annuities and other payments outside of probate are taken into consideration in computing the 1/3 share.
In this case the Philadelphia Orphans Court refused to approve the executor's proposed distribution of the estate. The court stated that the children who were owed child support had rights to contest the distribution of the estate to the beneficiary who owed the support obligation. The court went on to say that they also might rights against the spouse taking the 1/3 elective share, and the children might have a right to have a guardian appointed for them to pursue their claim. The court postponed the settling of the estate until the parties determined if there was enough money in the estate to pay the child support obligations, and to see if the parties could resolve the matter without resort to litigation. The case is In re Estate of Creamer, Court of Common Pleas of Philadelphia 14-1760, and the 16 page decision was published on September 30, 2014.
Stay well until the next post:
Bob Gasparro, Esq.
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