Rights and Responsibilities of Charitable Beneficiaries in Death-Related Administration of Estates and Trusts Presented By: Fredrick B. Weber Sr. Vice President – Estate Settlement Services The Northern Trust Company 50 S. LaSalle Street, B6 Chicago, IL 60603 312/444-4702 [email protected] Based on Materials Originally Written By: Stacy Singer Fredrick B. Weber Sr. Vice President - Fiduciary Practice Leader Sr. Vice President – Estate Settlement Services Northern Trust Company Northern Trust Company 50 S. LaSalle Street B-4 50 S. LaSalle Street, B-6 Chicago, IL 60603 Chicago, IL 60603 312/444-3826 312/444-4702 [email protected] [email protected] These materials are intended to provide information about the subject matter covered and are designed to serve as a point of reference for conference participants. These materials are distributed and presented with the understanding that the authors and the presenter are not rendering any legal, accounting, financial, or other professional services or advice. Attorneys or other professionals using these materials or any orally conveyed information in dealing with a specific client’s or their own legal or financial matters should research original and fully current sources of authority. 1 I. Introduction In the process of death-related administration of estates and trusts, why is it that transparency often seems so elusive even to those who are entitled to some sort of disclosure by the personal representative and/or the trustee? This is particularly intriguing since the Uniform Probate Code, which has been adopted in Massachusetts, contains at least 40 provisions that require fiduciaries to provide notice of some sort to heirs, legatees, creditors, beneficiaries and other interested persons.1 The Massachusetts Uniform Probate Code (the “Probate Code”) states that term, “interested person,” includes “heirs, devisees, children, spouses, creditors, beneficiaries and others having a property right in or claim against a trust estate or the estate of a decedent…”2 This would seem to make it clear that when someone steps up to act as a personal representative, an administrator, a guardian or a trustee, that person (or entity) immediately owes a lot of information to many different “interested persons.” This presentation seeks to clarify for charitable beneficiaries exactly what information is owed to them by personal representatives or trustees of estates and trusts during the period of death-related administration, and when and how that information must be delivered to them. It also seeks to better equip charitable beneficiaries to advocate more effectively on behalf their donors and the public who supports them. II. Overview of the Settlement of Decedent’s Estates and Trusts An overview of the process for settling decedents’ estates and trusts provides a helpful framework to illustrate when the interests of certain parties actually vest, whether or not those interests can be immediately satisfied or eliminated and if so, 1 See MA Gen L ch 190B §§ 1-101 – 3-1204. 2 MA Gen L ch 190B § 1-201(24). 2 how? If they cannot be immediately satisfied or eliminated, how does the fiduciary comply with its duty to deliver the information and provide the transparency that is necessary for the effective administration of the estate or trust? A. Statutory Notice Requirements and Informal Communication When a person dies, certain statutory responsibilities kick in immediately. Notably, there is the duty to deliver the original will “within thirty days after notice of death to a person able to secure its probate and if none is known, to an appropriate court.”3 This is the first “notice” requirement and probably the easiest one to satisfy. At death, the original will of the decedent becomes a public document and the whole world is given notice that anything in the will is available for public viewing. The will identifies the Personal Representative, who, even before being formally appointed, must assess the situation and determine if any issues must be addressed immediately. These issues might include the ongoing management of a closely held business, the initiation of a plan to liquidate concentrated stock positions, the inventorying of the personal property to insure all items are properly accounted for, the securing of any real estate (including changing the locks on a home to prevent unauthorized access) and the termination of any ongoing payments which may not be permissible after death. Even before a formal probate proceeding begins (assuming a formal proceeding is necessary or desirable), the informal communication and the gathering of information must already be in progress. This typically occurs in an in-person meeting with the fiduciary, the heirs, legatees, beneficiaries, the family attorney, the accountant and any other parties that might be able to provide information about the deceased person, their assets and their liabilities. This meeting is generally arranged within a few 3 MA Gen L ch 190B § 2-516 3 weeks or even a few days following the death. While beneficiaries often think that the initial meeting is for a formal reading of the will (they saw that in a movie, once), the real purpose of this meeting is to gather information about the types of assets, determine the manner in which the assets were titled, assess the estate’s liquidity needs, compile information about the decedent’s debts and expenses, try to understand the family situation, and perhaps most significantly, open the lines of communication between the fiduciary and the beneficiaries. It is also the time to confirm that the fiduciary is in possession of the most recent estate plan documents (including all amendments and codicils) and to obtain complete contact information for all of the beneficiaries and other parties with a financial interest (real or potential) in the estate or trust. After obtaining as much information as possible at that first meeting, the “nuts and bolts” of the death-related administration process formally begin and the duty to account to and communicate with all interested persons begins in earnest. If formal probate is necessary, the personal representative must become familiar with the communication requirements contained in the Probate Code. These communication requirements begin with the petition for formal probate of the will. Among the several items that must be contained in the petition for formal probate are a statement of the petitioner’s interest in the estate, the name, birthdate and date of the death of the decedent, the address of the decedent at death, and the names and addresses of the spouse, children, heirs and devisees and the ages of any of those who are minors.4 As the petition for formal probate of the will is a public document, the duty of the personal representative to communicate and share information with the heirs and legatees about the estate seems rather obvious. In addition, the Probate Code 4 MA Gen L ch 190B § 3-301(a)(1) 4 specifically requires that personal representatives to provide formal written notice to all of the heirs and devisees at least 14 days prior to the date set for the hearing on the petition for probate.5 There is also an affirmative duty to provide actual written notice to all of the decedent’s creditors whose names and addresses are known to or reasonably ascertainable by the personal representative or the administrator and to publish notice in a legal newspaper in the appropriate county for at least two consecutive weeks so that unknown heirs and unknown or unascertainable creditors can have an opportunity to present their claims.6 The rights of the residuary takers (those whose shares will be affected by the payment of debts, administrative expenses and taxes) to receive information is paramount as it is those interested persons to whom the personal representative owes the most comprehensive duty to account for all of the assets and liabilities of the estate.7 This is logical because it is the interests of these individuals and charities that will always be directly impacted by the payment of debts, taxes and expenses of administration. However, this is not always obvious to the personal representatives, and on occasion, the interests of charitable beneficiaries are not given as much attention as those of family members and other individuals. Once the personal representative has formally complied with the notice requirements contained in the Probate Code, the best way to continue the dialogue between the fiduciary and the beneficiaries that began at the first meeting (or to begin that dialogue in the absence of a meeting) is to follow up with a letter from the fiduciary (or the attorney for the fiduciary) to each of the beneficiaries. For beneficiaries who will receive specific cash or in-kind distributions, the letter need not be lengthy, as long as 5 MA Gen L ch 190B §§ 1-401(a) and 3-403(a) and (b). 6 MA Gen L ch 190B § 3-403(a) and (b). 7 See MA Gen L ch 190B § 3-1001. 5 the estate or trust is solvent and the fiduciary does not anticipate any abatement of the specific devises or distributions. For beneficiaries entitled to a share of the residue after the payment of debts, taxes and expenses of administration, the letter needs to contain a lot more detail because these beneficiaries (sometimes called “residuary beneficiaries” or “residuary takers”) are entitled to complete transparency and a full accounting during death-related administration. Sample letters to specific and residuary beneficiaries and devisees for the same hypothetical estate are attached to these materials at Exhibits A and B, respectively. B. Compilation and Dissemination of Asset Information At the same time that the fiduciary is communicating formally and informally with the beneficiaries and other interested parties about their rights and responsibilities, the fiduciary must also be reviewing, collecting and accounting for all of the assets that comprise the decedent’s gross taxable estate.