11.2 Protection of Beneficiaries

• Library: Manual for Commissioners of Accounts (Virginia CLE) (2019 Ed.)

11.2 PROTECTION OF BENEFICIARIES

11.201 Investment of Cash. When a fiduciary charged with the investment of funds collects principal, the fiduciary has a reasonable time, not to exceed four (4) months, to invest or loan the same. ¹ If uninvested cash does not exceed the amount reasonably necessary for working funds, interest should not be assessed. A fiduciary who fails to so invest or loan excess principal within this time limit should be assessed a surcharge equal to the lesser of the legal rate of interest or the prevailing average interest rate payable during the period of the account on money market accounts. ²

11.202 Debts Paid Those of Decedent. To determine that an account, which includes payment of debts, provides for payment of debts that are those of the decedent and not of another, creditor statements (bills and invoices) should be requested in every circumstance to substantiate all disbursements. Remember that Va. Code § 64.2-531 provides that property specifically bequeathed or devised generally passes subject to debts that the property secures. The estate is not required to exonerate such properties from the debt secured thereon; however, the estate is not protected from creditor claims for payment of such amounts. Va. Code § 64.2-531(B) provides a mechanism whereby the fiduciary may exonerate the estate from payment of such debt or require liquidation of the bequest or devise to pay the debt. The Standing Committee suggests that when the nonexoneration situation is apparent, or a fiduciary requests information on the handling of a specific bequest or

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devise of an asset that is encumbered, the commissioner recommend that estate administration legal counsel be retained by the estate to properly advise the personal representative.

11.203 Funeral Expenses. The reasonableness of funeral expenses is a difficult issue with which to deal. Often a family member who is not the executor has made the arrangements with the funeral home. The largest expenditures seem to be paid from modest estates. The commissioner should demand written approval of funeral costs by the residuary beneficiaries where payments appear excessive. If beneficiaries are minors or incapacitated and cannot consent, the commissioner should follow the guidelines set down by the Supreme Court of Virginia in Scott Funeral Home v. First National Bank: ³

In determining the reasonableness of funeral expenses, each case must rest on its own particular facts and circumstances. However, in arriving at what is reasonable the prevailing rule is that the amount of funeral expenses allowable against a decedent's estate "must correspond with decedent's station in life and matters in relation thereto, and with the value of the estate."

Particular attention should be paid to funeral expenses in the case where the estate is insolvent, as Va. Code § 64.2-528 establishes the first $4,000 ⁴ of such costs as a class 3 priority, but the excess costs above that priority fall into class 10.

11.204 Fiduciary Compensation and Attorneys' Fees. In 2005, the Judicial Council of Virginia approved "Guidelines for Fiduciary Compensation," which the Standing Committee on Commissioners of Accounts had prepared. These Guidelines have been approved by most circuit courts and are now in general use in the absence of a controlling provision for fiduciary compensation and attorney's fees set forth in the will. The Guidelines, which were updated in 2017, are included in Chapter 21. These are a suggestion of reasonable fiduciary compensation which may, in the discretion of the commissioner, be deviated from, either upward or downward. Where fiduciary compensation becomes an issue, each estate must be evaluated on its own circumstances. This can be a very delicate area for the commissioner's review where an attorney has been involved in assisting the fiduciary, as it is difficult to judge an attorney's invoices to determine if the attorney's time was spent on normal fiduciary duties or on true legal services beyond what a personal representative would be expected to perform as part of his or her normal duties. If the fiduciary takes no commission and the legal fees do not exceed the

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Guidelines, no problem generally exists. However, where the fiduciary is expecting to take full compensation pursuant to the Guidelines and has also incurred attorney's fees in administering the estate, the commissioner must determine if the combined fees are reasonable or excessive, often leading to the requirement of a refund of fiduciary compensation to the estate.

Absent controlling language in the will, attorneys serving as personal representatives are also bound by the Guidelines and may not charge on an hourly basis without consideration of the Guidelines. Where combined fiduciary compensation and legal fees, or legal fees alone, exceed the Guidelines, the attorney's billing statements, setting forth time, hourly rate, and subject matter for the charge, must be requested and reviewed by the commissioner to determine if a deviation from the Guidelines is appropriate, or whether the Guidelines apply and the fiduciary will be required to refund a commission already taken or discount a commission proposed to be taken. ⁵

Often fiduciaries and/or attorneys request approval of compensation and fees prior to submitting the final account. If so, whatever pre-approval is given should be stated by the commissioner as being "subject to hearing on any objection filed to the amount of commission or fees."

11.205 Interest on Bequests. If a bequest of money is not paid within one year after a decedent's death, interest should be paid the legatee at the statutory rate of 6% per annum from the date which is one year after date of death. ⁶ This rule protects legatees from delayed payment, which in most cases benefits residuary beneficiaries who receive the income earned during administration. Interest should be paid even if the cash was not available to make timely payment of the legacies due to the estate's lack of liquidity or due to a substantial delay in qualification of a personal representative to administer the estate.

11.206 Interest on Accounts and Debt Instruments Specifically Bequeathed. If a testator bequeaths his or her AT&T bond to X, all interest accruing from date of death and received by the personal representative is due to legatee X.

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11.207 Dividends on Stock Bequeathed. Similarly, if a legatee is bequeathed the testator's 100 shares of AT&T stock, all dividends with a record date after the testator's death collected by the personal representative should be paid to the legatee.

11.208 Distribution to a Minor. If a minor's share of an intestate estate does not exceed $25,000, ⁷ it may be paid to a custodian under the Uniform Transfers to Minors Act. ⁸ Likewise a bequest in a will not exceeding $25,000 may be paid to a custodian unless the will expressly directs establishment of a trust. If the will expressly authorizes it or contains the powers set forth in Va. Code § 64.2-105, bequests to minors in excess of $25,000 may be paid to a custodian. If the intestate share exceeds $25,000 or the will does not authorize payment to a custodian, a distribution due a minor in excess of $25,000 may be paid to a custodian only with approval of the court. Otherwise, a bequest for a minor must be paid to his or her duly qualified guardian and a copy of the guardian's certificate of qualification should accompany the account.

11.209 Distribution to Other Persons Non Sui Juris. If the recipient has executed and delivered to an attorney-in-fact a durable power of attorney, the receipt of the attorney-in-fact will suffice, if accompanied by an affidavit that the power of attorney is still in force. Some commissioner's require the recordation of the power of attorney. An original copy of the power of attorney should be produced and a photocopy kept in the commissioner's file. The commissioner should add a note by any disbursement received on behalf of a person by his or her attorney-in-fact as follows: "receipted by (name of attorney-in-fact) acting under power of attorney from (beneficiary) dated _____________, a copy of which was exhibited to the commissioner of accounts." If a beneficiary's duly qualified conservator has received delivery, a note should be added as follows: "receipted by (name of conservator) qualified in Circuit Court of (jurisdiction) on ___________." The conservator's certificate of qualification should be kept in the commissioner's file.

A distribution not exceeding $25,000 ⁹ may also be made to a custodial trustee for an incapacitated ¹⁰ person under the Uniform Custodial Trust Act.

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This Act also permits distributions in excess of $25,000 to be made with court approval. If the will or trust incorporates the powers set out in Va. Code § 64.2-105 (specifically § 64.2-105(B)(17)(v)), court approval is not required, regardless of the amount of the distribution. ¹¹ A proper receipt to be signed by the custodian is provided in Va. Code § 64.2-903. It may be prudent for the commissioner to require evidence of the deposit of the minor's distribution to a custodial account to insure that it has been deposited and that the account is properly titled.

A distribution to a convict should be paid to his or her committee, ¹² or if none, into court. ¹³ Some commissioners allow small distributions to be paid to the proper institutional custodian of the inmate's funds for use during incarceration. Another alternative may be payment to an attorney-in-fact under a duly recorded power of attorney, with a current affidavit from the inmate authorizing the payment of the distribution to the attorney-in-fact.

Finally, if a person entitled to a sum of money not exceeding $25,000 is not considered competent to administer it, the commissioner may authorize payment of such amount to another person who is considered competent to administer the funds for the benefit of the...