Fees, Fees, Fees: Does Pennsylvania Have a Fee Schedule for Estate Executors and Administrators?

When someone dies, beneficiaries of the estate often argue about all sorts of issues. These can range from the mundane (Who gets the antique salt and pepper shakers?) to the treacherous (Does that greedy second wife really deserve to be a beneficiary of the will?)  Even when they disagree, however, most beneficiaries tend to unify on one point—their belief that the executor and/or attorney for the executor have charged unreasonable fees.

Unlike many states, Pennsylvania does not have a published Court-approved fee schedule.  Instead, since 1983, attorneys and fiduciaries have relied to some degree upon a  fee schedule mentioned in and adopted by Judge Wood of the Chester County Orphans’ Court in the matter of Johnson Estate, 4 Fid. Rep. 2d 6 (O.C. Chest. 1983).

The Mysterious but All-Important Johnson Estate Fee Schedule

In Johnson, Judge Wood stated that a “Pennsylvania Attorney General Fee Schedule” existed, which established a graduated scale of fees the Attorney General would deem reasonable in matters involving a charitable beneficiary or interest.  Judge Wood even attached the alleged “Attorney General” fee schedule to the opinion.  Interestingly, the Pennsylvania Attorney General has denied ever since the 1983 Johnson Estate opinion that any such “Attorney General approved” fee schedule exists. Nonetheless, the legend of the Johnson Estate opinion has only grown, mainly because it has been cited repeatedly by other Orphans’ Court judges for its “fee schedule” concepts and percentages.  Interestingly enough, some of the fee categories and percentages described in the Johnson Estate opinion are essentially impossible for even lawyers to understand.  A detailed discussion of the permutations of the calculations is beyond the scope of this blog. I recommend that you review the Johnson Estate fee schedule (included below) for yourselves or consult an attorney experienced in this area of law.

Johnson Estate calculations are relevant to any Pennsylvania matter in which executors, administrators and/or their counsel are seeking fees.  What is essential to understand is that the Johnson fee schedule is a helpful guidepost in evaluating fiduciary fees and commissions, but it establishes no mandatory rules.  The fact is that Orphans’ Court Judges have tremendous discretion to approve or disapprove fees sought by fiduciaries. And once a matter has entered the court system, the fees of fiduciaries and their counsel are always subject to court approval and revision—whether or not any interested parties have objected to them.

For instance, if a fiduciary has expended extremely little effort yet the estate is large (for example, an estate with a $4 million brokerage account, only two beneficiaries, and no real estate, significant debts, or intra-family strife), then the Orphans’ Court will not likely approve a “full Johnson” fee.

A Recent Opinion Based on the Johnson Estate Fee Schedule

Recently, the Honorable Stanley R. Ott of the Orphans’ Court of Montgomery County, one of Pennsylvania’s most well-respected Orphans’ Court judges, reminded us of the limitations of the Johnson Estate opinion in His Honor’s opinion in Duhovis Estate, 2 Fid. Rep. 3d 431 (O.C. Montg. 2012).   In Duhovis, the decedent left equal shares of his estate to his four children, two of whom were named the co-executors in his will. Five days before his death, the decedent transferred his family farm to his son with whom he lived. That son prevailed in a subsequent civil suit filed by the accountants/executors of the decedent’s estate that challenged the transfer of the farm.  The account showed that the decedent’s gross estate contained $48,516.61, and proposed that the commission should total $8,696, or roughly 18% of the gross estate.

 

The son who received the family farm objected to the proposed commission, and sought to limit the commission amount to $2,425.83, or 5% of the gross estate.  The objectant relied upon the Johnson Estate schedule of fees in alleging that the accountants should receive a maximum 5% commission.

 

Judge Ott rejected the objectant’s position that the Johnson Estate opinion established a maximum fee for any matter.  He held that the “schedule, proposed by the Chester County Orphans’ Court, is merely a starting point in the determination of compensation, is not binding on this Court and should not be applied blindly.”  Judge Ott also held that the objectant hindered the estate’s administration and that the co-executors devoted “sufficient time to their fiduciary duties” to justify commissions totaling $4,850 or 10% of the gross estate. Specifically, the objectant refused to let an appraiser onto the farm to appraise the decedent’s personal property, causing one co-executor to spend hours moving items to her garage from the farm.  Further, the co-executors spent time dealing with delinquent real estate taxes on one parcel of the farmland, and they were delayed in obtaining the proceeds of an annuity because the objectant refused to supply necessary information to the insurance company.  In other words, Judge Ott did not allow the son to both force the co-executors to expend significant additional effort and then argue that they should not be compensated for that additional effort.  This is something that folks should keep in mind when they are contemplating picking a fight with a fiduciary.

The Take-Away

Judge Ott emphasized that fiduciary commissions are determined not by blindly adhering to a schedule, but by taking into account an array of factors unique to each case.  Good lawyers remind their clients continually that each case rises and falls on its own facts and circumstances.  Judge Ott’s opinion in Duhovis is a perfect example of that simple truth.

I cannot emphasize enough the need for fiduciaries and their counsel to keep accurate and contemporaneous records of their time and expenses to support their conduct and fees.  Without them, claimed fees may be slashed for lacking evidentiary support.

 

Exhibit A
Johnson Estate, 4 Fid.Rep.2d 6, 8 (O.C. Chester 1983)

COMMISSIONS
						Per Col.	Per Total
	$	00.01	to   $	100,000.00	5%	5,000.00	5,000.00
	$	100,000.01	to   $	200,000.00	4%	4,000.00	9,000.00
Executor or	$	200,000.01	to   $	1,000,000.00	3%	24,000.00	33,000.00
Administrator	$	1,000,000.01	to   $	2,000,000.00	2%	20,000.00	53,000.00
	$	2,000,000.01	to   $	3,000,000.00	1½%	15,000.00	68,000.00
	$	3,000,000.01	to   $	4,000,000.00	1%	10,000.00	78,000.00
	$	4,000,000.01	to   $	5,000,000.00	½%	5,000.00	83,000.00

 

1%	Joint Accounts	1%	P.O.D. Bonds	1%	Trust Funds
3%	Real Estate Converted with Aid of Broker	5%	Real Estate: Non-Converted	1%	Real Estate: Specific Devise

 

	$	00.01	to   $	25,000.00	7%	1,750.00	1,750.00
	$	25,000.01	to   $	50,000.00	6%	1,500.00	3,250.00
	$	50,000.01	to   $	100,000.00	5%	2,500.00	5,750.00
Attorney	$	100,000.01	to   $	200,000.00	4%	4,000.00	9,750.00
	$	200,000.01	to   $	1,000,000.00	3%	24,000.00	33,750.00
	$	1,000,000.01	to   $	2,000,000.00	2%	20,000.00	53,750.00
	$	2,000,000.01	to   $	3,000,000.00	1½%	15,000.00	68,750.00
	$	3,000,000.01	to   $	4,000,000.00	1%	10,000.00	78,750.00
	$	4,000,000.01	to   $	5,000,000.00	½%	5,000.00	83,750.00

 

½%	Regular Commission P.O.D. Bonds and Trust Funds	3½%	Transfer Joint Accounts	3½%	Assets Which Are Taxable at One Half Value
1%	Non-Probate Assets up to $1,000,000	1%	Non-Probate Assets		Joint Accounts Fully Taxable: Full Commission

Welcome to our new blog: Around the Pennsylvania Orphans’ Courts

Welcome to Around the Pennsylvania Orphans’ Courts, our new and hopefully insightful blog for both attorneys and individuals interested in fiduciary litigation matters in Pennsylvania.

Most of you presumably know that the Orphans’ Court in any given county handles litigation involving wills, trusts, estates, and guardianships. On a more light-hearted note, the Orphans’ Court judges also oversee Pennsylvania’s adoption process, and I know from speaking with them that many judges find those days among the most satisfying of their careers—presiding over a proceeding that brings a family together rather than one that often tears a family apart after the death of a parent or other loved one. Litigation in the Orphans’ Court falls within a broader category of law known as “fiduciary litigation,” because included among the parties to every Orphans’ Court action are fiduciaries—whether trustees, executors, agents under a power of attorney, guardians, or others who oversee another’s affairs.

I have been a litigator for 21 years, and I devoted the last 7 years of my practice exclusively to fiduciary litigation at Heckscher, Teillon, Terrill & Sager, the Commonwealth’s finest trusts and estates boutique firm, located in West Conshohocken, Pennsylvania. The tragic death of my dear friend and former law partner, Bill Kane (the “Kane” in “Smith Kane”) on May 29, 2012, led me to return to practice with my good friend Dave Smith. At Smith Kane, I have expanded my practice to again include commercial and bankruptcy litigation, but the vast majority of my practice remains concentrated in fiduciary litigation.

The fascinating world of fiduciary litigation—with its collision of money, death and family—generates new and interesting issues every day. In this blog, Around the Pennsylvania Orphans’ Courts, I will write about some of these issues and share some insights. In many posts, I will discuss recent opinions issued either by Pennsylvania Orphans’ Court Judges at the county level (where the real action is, and where judges often have tremendous discretion, thus dissuading appeals ) or by the appellate courts of the Commonwealth of Pennsylvania. I will analyze cases here in the same way I discuss them with my clients—as simple and logical as I can be. I believe almost every legal issue, regardless of its complexity, can be understood by anyone as long as the story is told correctly. Albert Einstein allegedly once said, “you really do not understand something unless you can clearly explain it to your grandmother,” and I share that sentiment completely.

My blog posts will be brief and will address what I find to be the critical factual and legal issues presented by any given case. I will also throw in my two cents about why the cases I discuss might be relevant to a lawyer or an individual interested or involved in fiduciary litigation.

I hope you find this blog helpful and interesting. If you like what you see, please subscribe (button at top) or revisit to read new posts. If you think someone you know might be interested in some of these issues, share the link with them.