By Kimberly M. Colonna
For well over 60 years, Pennsylvania law has provided that, for trusts created before 1945, an entity that was paid a commission as the estate executor was not entitled to a trustee's commission paid from the principal of the trust. A 2011 decision from the Pennsylvania Supreme Court has changed this rule in a way that benefits trustees.
A Pennsylvania statute that was in effect until 1945 provided that where the same person fulfilled the duties of executor and trustee, that person was not permitted to receive more than one commission paid from principal. Although that statute had been repealed, in 1951 the Pennsylvania Supreme Court issued a decision, In re Williamson [enhanced version available to lexis.com subscribers], that said that the prohibition against dual commissions must be applied to any trust that was created before 1945. The Williamson decision reasoned that applying a newer statute (which did not ban dual commissions) retroactively to those pre-1945 trusts would be unconstitutional. For many years, the Williamson decision has presented a hurdle for institutional trustees of long-existing trusts. If a trust was created before 1945 and the institutional trustee had received a commission for serving as the executor of the estate, the institution was unable to obtain a trustee's commission on the trust principal, even when the executor's fee had been paid decades earlier and the trustee had undertaken significant fiduciary duties and provided extensive services for the trust.
The 2011 decision in Estate of Fridenberg [enhanced version available to lexis.com subscribers] has resolved this problem. Fridenberg involved a will from 1938 that created a trust and named a trust company as co-trustee and co-executor of the estate. The trust company was paid an executor's commission when the grantor died in 1940. Wachovia Bank was the corporate successor to the trust company, and in 2005, it filed an account which included a request for a commission paid from the trust principal for trustee services provided between 1978 and 2005. The Attorney General argued that Wachovia was not entitled to be paid a trustee's commission from the principal of the trust. The Pennsylvania Supreme Court ruled for Wachovia and said that the rule announced in Williamson would no longer apply. The Court cited to the development of modern trust law, which showed the legislature's intent to end the ban on dual commissions. The Court also made the broader point that modern trust law imposes significant duties and risks upon trustees, such that trustees have to be more active in managing the trust assets, and are, therefore, entitled to a commission from principal. Finally, the Court ruled that applying existing statutes regarding trustee compensation to the pre-1945 trust at issue was not unconstitutional.
In short, Pennsylvania no longer has a general prohibition against dual commissions for pre-1945 trusts. Trustees of long-existing or perpetual trusts should consult counsel about what commissions are available to them in light of the Fridenberg ruling.
© 2012 McNees Wallace & Nurick LLC
ORPHANS' COURT UPDATE is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.
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