Approval of Fees in Probate Cases

By Matthew Thornton
Bourland Heflin Alvarez Minor and Matthews, PLLC

On June 29, 2006, Judge Randy Kennedy of the Seventh Circuit Court of Davidson County, Probate Division, signed an order in the Estate of William E. McGinnis (Docket No. 03-P-1037) in which the Court found “that it was improper for the prior attorney of the estate to charge the estate a fee, and demand that the fee be paid, without first seeking court approval.” The Court further stated that it was “making no determination of the appropriateness of the amount of the fee charged by prior counsel, only that it was improper to charge the administratrix a fee without first seeking court approval.” A copy of this order was subsequently forwarded to the Board of Professional Responsibility.

On January 18, 2007, the Tennessee Board of Professional Responsibility (the “Board”) issued a Release of Information regarding a public censure issued to the attorney whose conduct had been adjudged “improper” by Judge Kennedy. The Release from the Board reads in part: “[The attorney’s] charging and accepting the fee without first seeking or obtaining court approval [is a] violation [of] Rules 1.5 and 8.4(a) [and] (d) of the Tennessee Rules of Professional Conduct.”

This broad language in the Board’s Release is troubling in that it appears to mandate that attorneys must always seek court approval of their fees in every estate situation. While this may reflect the local rule in some counties in Tennessee, it is not the general rule in all estates in other counties. In at least one county in Tennessee, the local rules explicitly provide for the option that an estate attorney may arrive at an agreed-upon fee without court approval if all the beneficiaries of the estate are sui juris.

I have investigated the precedential status of this Board Release on attorneys who practice in the Tennessee probate courts and conclude, very simply, that I do not believe the Release is an attempt to mandate a policy for all estate attorney fees in all counties in Tennessee. One of the reasons I arrived at this conclusion is that, while the censured attorney apparently had secured the consent of the Administratrix to his fee, the other two beneficiaries of the estate were minors and were therefore legally incapable of consenting to the attorney fee. I know of no court in Tennessee which allows attorney fees to be paid from estate funds without court approval when there are minor beneficiaries.

In short, I recommend that probate attorneys be aware of and comply with Rule 1.5 of the Tennessee Rules of Professional Conduct and also the local rules of the probate courts in which they practice.

Update on Estate and Trust Related Legislation and Litigation in Tennessee

Compiled by Angelia Morie Nystrom
Baker Donelson Bearman Caldwell & Berkowitz, PC

The following is an update on cases of interest from 2007 and statutory changes of interest to estate planning practitioners, enacted or effective as of May 2007. You may view the text of the enacted bills, as well as monitor the status of pending bills, at http://www.tba.org/tba_legismain.html.

T.C.A. § 31-4-101(b): The value of a decedent’s estate includes all of decedent’s real property, notwithstanding T.C.A. § 31-2-103, which provides that real property passes outside of probate. Assets subject to a power of appointment in the hands of a decedent will not be a part of the decedent’s estate unless the decedent exercises the power of appointment and appoints the assets subject to the power to the decedent’s personal representative for administration as part of the decedent’s probate estate.

T.C.A. § 31-4-101(d): The elective share will not be subject to any portion of death taxes on the decedent’s estate, regardless of T.C.A. § 30-2-614(b) and (e), as long as the elective share qualifies for the marital deduction and is used as a deduction in calculating the estate’s death tax liability.

T.C.A. § 31-4-102(a)(1): For persons dying after July 1, 2007, the deadline for a surviving spouse to file for an elective share is set at 9 months from the date of decedent’s death.

T.C.A. § 34-1-107(e): The requirement that an order appointing a guardian ad litem include the Social Security Number of a minor or disabled person is removed.

T.C.A. § 31-1-109(c): A Social Security Number of a person for whom a guardian or conservator is appointed may be given to the guardian or conservator and used in any manner approved by the court. The Social Security Number may be given to third parties for good cause shown.

T.C.A. § 35-16-101 et seq: The Tennessee Investment Services Act.
The Tennessee Investment Services Act is intended to allow a trustor to provide protection from creditors by allowing the creation of a self-settled, asset protection trust (“Investment Services Trust” or “IST”). An IST is a trust that appoints a “qualified trustee” to hold and administer property that is the subject of a “qualified disposition.” The IST must expressly incorporate the laws of the State of Tennessee to govern the construction, validity and administration of the trust, must be irrevocable, and must provide that the interest of the transferor or beneficiary of the trust property or income may not be transferred, assigned, pledged or mortgaged, whether voluntarily or involuntarily, before distribution by the qualified trustee.

A “qualified disposition” is a transfer into the trust, with or without consideration for the transfer. In making a disposition, the transferor must sign a “qualified affidavit” which states that the transferor:

1. Has full right, title and authority to transfer the assets to the trust;

2. Will not be rendered insolvent by the transfer;

3. Does not intend to defraud a creditor by transferring the assets to the trust;

4. Does not have any pending or threatened court actions against him or her, except for those identified in an attachment to the qualified affidavit;

5. Is not involved in any administrative proceedings, except for those identified in an attachment to the qualified affidavit;

6. Does not contemplate the filing for relief under the federal bankruptcy code; and

7. Did not obtain the assets being transferred through unlawful activities.

In most instances, a qualified disposition cannot be attached by creditors unless the creditor makes a claim under the Uniform Fraudulent Conveyance Act. Creditors cannot make claims against a trustee or any person involved in the counseling, drafting, preparation, execution, and funding of the IST.

The qualified trustee of an IST must be either a Tennessee resident or an individual or entity authorized by Tennessee law to be a trustee and whose activities are subject to the control and supervision of the Tennessee Department of Financial Institutions, the FDIC, the Comptroller, or the Office of Thrift Supervision. The qualified trustee must maintain and arrange for custody and control of property held under the IST, maintain the IST records, file the IST tax returns, or otherwise participate in the administration of the IST.

T.C.A. § 35-13-114: The cy pres doctrine enunciated in T.C.A. § 35-15-413 is applicable to any charitable gift if the original charitable donee ceases to exist.

T.C.A. § 66-1-202(f): A trustor may extend the period of the rule against perpetuities to a maximum of 360 years. If the trust extends the rule against perpetuities beyond the traditional lives in being plus twenty-one (21) years or ninety (90) years, the trust must give a power of appointment to at least one member of each generation of beneficiaries who are beneficiaries more than ninety (90) years after the trust was created. The permissible appointees must include descendants of the beneficiary who holds the power of appointment.

T.C.A. § 67-4-409(a)(3)(E) and (F): Limits the recording tax exemption for transfers to revocable trusts to transfers funding a revocable trust created by the transferor or the transferor’s spouse or returning the property to the transferor the transferor’s spouse on the termination of the trust or on deeds from the trustee of a revocable trust carrying out the deceased transferor’s post death directions.

Erickson v. Erickson-Mitchell, Court of Appeals, Middle Section, Filed May 29, 2007: In this divorce action, Husband appealed the trial court’s decision to invalidate the parties’ Prenuptial Agreement and the decision to award alimony in the form of attorney’s fee to the Wife. The trial court found that Husband inadequately disclosed his financial position. The trial court also found that Husband materially misrepresented to Wife, prior to the marriage, that he was a social drinker and not an alcoholic. The Court of Appeals reversed the trial court’s decision to invalidate the Prenuptial Agreement and invalidated the award of attorney’s fees. The Court specifically noted that there was a mere two percent differential in the value of assets disclosed and the value of the assets as asserted by Wife. The Court further concluded that the Husband and Wife were sophisticated parties, each was represented by counsel, and that the parties had entered into the Prenuptial Agreement knowledgeably, in good faith and without exertion of duress or undue influence.

Basham v. Duffer, Court of Appeals, Middle Section, Filed June 27, 2007: Basham and two others served as Estelle Ray’s attorneys-in-fact and brought suit against the three parties who had previously cared for Estelle Ray, all children from her deceased husband’s prior marriage. Estelle Ray was an elderly widow with little or no experience in handling her own money. Appellants argued that Appellees mishandled Estelle Ray’s funds for their own person benefit. The trial court found that there had been no breach of duty on the part of Appellees, declaring Estelle Ray to have been competent at the time of dissipation of her funds, and therefore dismissed the case. The Court of Appeals affirmed in part and reversed in part, determining that one of the Appellees had signed documents by writing his own name and then writing “POA for Estelle Ray” below his own signature. The evidence supported the allegation that he withdrew more than $30,000 from Estelle Ray’s bank accounts and then transferred her automobile. It was determined that this man had benefited from the transactions involving Estelle Ray’s funds, as several checks were made out to him and to members of his immediate family. The Court remanded to the trial court for a determination of damages.

Lanier v. Rains, Supreme Court of Tennessee, Filed June 28, 2007: Lanier sought legitimization after the death of Dexter Rains so as to share in his estate as a pretermitted heir under T.C.A. § 32-3-103 (2001). The chancery court sustained a motion to dismiss filed on behalf of Rains’ Estate and Rains’ wife and son as co-executors of the Estate. The Court of Appeals affirmed. The TN Supreme Court granted review to resolve the conflict between the ruling of the Court of Appeals and a prior unpublished opinion of that court. Because Lanier does not qualify as a pretermitted heir and has not demonstrated a viable claim under Tennessee’s equal protection clause, she is not entitled to share in the estate. Accordingly, the judgment of the Court of Appeals was affirmed in part. The claim for legitimization was remanded to the chancery court for further proceedings because, despite the Court’s holding, Lanier is entitled to have the opportunity to establish that Rains was her father.

Dean v. Estate of Eva Stanley, Estate of Charles Allen Stanley, Charles Allen Stanley Conservatorship, Court of Appeals, Eastern Section, Filed July 25, 2007: In these estate cases, the trial court construed the Will of Eva Stanley and ordered her house sold and the proceeds distributed intestate. The court denied executrix fees from her Estate for mishandling the Estate, but awarded claims for the conservators for caring for the ward, Charles Allen Stanley. The Court of Appeals reversed the construction of the Will, affirmed the denial of executrix fees, and reversed the court’s awarding fees for care of the ward. The court found that Eva Stanley’s overriding intent was that Charles Stanley be cared for until his death, and that was accomplished. She obviously intended to reward the guardian who was caring for Charles at the time of his death by letting the guardian have the house. Accordingly, the Court reversed the trial court’s holding in ordering the house be sold and the proceeds to pass by intestacy. The Court further found that the women who cared for Charles had not filed accountings related to the conservatorship or the ward’s property. Moreover, the trial court found that no claims were made for care and maintenance during the pendency of the conservatorship. Accordingly, the inference arises that the care was gratuitous, and where no claims were made for reimbursement, a caretaker may not later make such claims.

Whitley v. Rippey, Court of Appeals, Middle Section, Filed August 3, 2007: This case involved a will contest. The decedent was an 83-year-old man who had no natural children. In 1968, the decedent adopted his first wife’s two adult daughters, the plaintiff and her sister. In 1970, the decedent’s first wife died. After her mother’s death, the plaintiff visited the decedent sporadically. The last visit occurred in 1999 or 2000. In April 2002, after meeting with his accountant and attorney, the decedent executed a will that divided the estate among his nieces and nephews and a friend. The will did not mention or otherwise acknowledge plaintiff or her sister. Around the time he executed the will, the decedent told both the drafting attorney and his treating physician that he “had no children.” Three years later, in 2005, the decedent died, and the will was admitted into probate. The plaintiff then filed a complaint contesting the will, claiming that the decedent lacked testamentary capacity. The executor filed a motion for summary judgment, which the trial court granted. The plaintiff appealed, arguing that the decedent’s statements that he “had no children” were sufficient to establish a genuine issue of material fact as to the decedent’s lack of testamentary capacity at the time the will was executed. The Court affirmed the trial court, holding that the plaintiff failed to set forth sufficient evidence from which the trier of fact could reasonably find that the decedent lacked testamentary capacity to execute the April 2002 will.

Estate of Lang, Court of Appeals, Eastern Section, Filed July 31, 2007: This case involves a dispute in probate between Lydia Jane Woschenko, who is the decedent’s ex-wife, and Stephanie Lang, who is the decedent’s widow and the executrix of his estate. Woschenko filed a claim against the estate based upon a post-divorce agreement between her and the decedent. She sought to recover the unpaid balance of half of the net value of the marital real property. The trial court found the agreement to be valid and awarded Woschenko approximately $72,000. The executrix appealed, raising issues regarding the Dead Man’s statute, the doctrine of incorporation by reference and the equitable doctrine of laches. The judgment of the trial court was modified to award the claimant a lesser amount, as the Court disagreed with the calculation of the amount.

Estate of Reynolds, Court of Appeals, Western Section, Filed September 11, 2007: This case involves the sale of equipment, made by decedent to his friend, eleven days before he died. The administrator of the decedent’s estate filed a complaint to set aside the sale, alleging fraud, undue influence and inadequate consideration. The trial court set aside the sale and ordered the estate to reimburse the purchaser for the amount paid. The Court of Appeals reversed, holding that the buyers manifested an intent to purchase all of the equipment by executing a bill of sale that listed all of the items, that the bill of sale was sufficient to satisfy the statute of frauds, that there was no confidential relationship that would nullify the sale, that the decedent had capacity to enter into the contract, that there was no fraud on the part of the purchaser, and that the consideration was adequate.

In re Estate of Blackburn, Court of Appeals, Middle Section, Filed November 14, 2007: This case involves a will contest. The decedent, who had three grown children, died after a long illness. Two of his children filed a petition to administer the decedent’s intestate estate as co-administrators. During the ensuing two years, the third child lived part-time in decedent’s home. When it was discovered that some personal property in the decedent’s home was missing, the co-administrators filed a petition against their sibling to recover the property of the estate. The third child filed a counterclaim, seeking to probate as the decedent’s last will and testament, a handwritten document that was drafted and executed about eight hours before the decedent’s death. The co-administrators contested the purported will. After a jury trial, the jury returned a verdict finding that the handwritten document was “not a will”. The proponent appealed. The Court of Appeals upheld the jury’s verdict.

Estate of Anderson, Court of Appeals, Middle Section, Filed November 16, 2007: After procuring an administrator of the estate of an elderly decedent, the Tennessee Bureau of TennCare filed a claim against the estate seeking reimbursement of benefits properly paid to the nursing facility on the decedent’s behalf. The administrator excepted to the claim, and the probate master issued an opinion barring the claim as untimely under T.C.A. § 30-2-310(b) (2001). The chancery court adopted and affirmed the probate master’s opinion. The Court of Appeals affirmed, stating that the claim was barred, as it was filed more than 12 months from the date of death of the decedent and that the statute of limitations was not tolled.

Estate of Henkel, Court of Appeals, Court of Appeals, Middle Section, Filed November 16, 2007: After procuring an administrator of the estate of an elderly decedent, the Tennessee Bureau of TennCare filed a claim against the estate seeking reimbursement of benefits properly paid to the nursing facility on the decedent’s behalf. The heirs excepted to the claim, and the trial court issued an opinion barring the claim as untimely under T.C.A. § 30-2-310(b) (2001). The Court of Appeals affirmed, stating that the claim was barred, as it was filed more than 12 months from the date of death of the decedent.