Department of Revenue Resumes Processing of Inheritance Tax Returns

Posted on by July 5, 2020

The following message was sent to the Pennsylvania Bar Association on or about 6/29/2020 by Lora A. Kulick, Senior Counsel in the Office of Chief Counsel of the Department of Revenue:

“The department recently received inquiries regarding whether it was issuing Inheritance Tax notices of assessment. It temporarily had not been issuing assessments due to its offices and ROW offices COVID-19 closures. The department now has resumed issuing limited assessments and other notices. The department will continue to increase the number of and types of notices issued. The most up to date information regarding Revenue’s operations can be found on the department’s website at: https://www.revenue.pa.gov/Pages/COVID19.aspx.”

Taxpayer Advocate on Economic Impact Payments to Deceased Taxpayers

Posted on by July 5, 2020

The National Taxpayer Advocate Objectives Report to Congress for Fiscal Year 2021 (6/29/2020) addresses the issue of whether deceased taxpayers may receive “economic impact payments” (aka “stimulus payments”) authorized by the CARES Act and made the following observations and recommendations:

  1. In 2008, the IRS did not ask that similar payments to decedents be returned and took no steps to collect the payments from the decedent’s estate or family.
  2. The statute could be interpreted to include a person who dies in 2020 in the definition of “eligible individual” even if the person died before the payment is received.
  3. The IRS should not spend resources pursuing enforcement actions to recover payments sent to decedents.

See “Individuals in Limited Circumstances Are Being Asked to Return the Economic Impact Payments,” beginning at page 56 of the Report.

Conclusion #2 is consistent with the observations made in “Economic Impact Payments for Decedents,” which has additional information about the relevant provisions of the CARES Act.

Cy Pres Not Applied to Merger of Fire Fighting Organizations

The merger of two non-profit corporations holding charitable funds, one of which had been decertified as a fire fighting organization by its municipality, did not require the application of the cy pres doctrine when the decertified organization had broad charitable purposes that would be continued by the surviving corporation. In Re: Merger of Universal Volunteer Fire Department into Point Breeze Volunteer Fire Association, No. 1060 C.D. 2019 (Pa. Cmwlth. 7/1/2020).

Changes to Charitable Foundation Did Not Breach Duties

Amendments to the articles and by-laws of a foundation that changed the charitable goals of the foundation, and eliminated provisions that guaranteed that control of the foundation remained in the oldest descendant of the founder, adopted by the directors of the foundation in accordance with the by-laws (including the approval of the oldest descendant of the founder), were not breaches of duties of care, obedience, and loyalty and were not fundamental changes that required the approval of the Orphans’ Court. In Re: Jack Buncher Foundation, No. 306 C.D. 2019 (Pa. Cmwlth. 7/1/2020).

Trust Modification Invalid Even with Settlor’s Consent

Following Trust under Agreement of Edward Winslow Taylor, 640 Pa. 629, 164 A.3d 1147 (2017), a trust cannot be modified to allow the beneficiaries to remove and replace trustees even with the consent of the settlor under 20 Pa.C.S. § 7740.1(a). Garrison Trusts, 10 Fid.Rep.3d 189, Nos. 1992-X1509, 1992-X1518, and 1992-X1519 (Montgomery O.C. 6/16/2020), aff’d 1429 EDA 2020 (Pa. Super. 9/27/2021) (non-precedential), rev’d, ___ Pa. ___, ___ A.3d ___, 61 MAP 2022, 62 MAP 2022, and 63 MAP 2022 (1/19/2023).

[DBE Note: This decision is almost certainly wrong. It relies entirely upon the failure of the Taylor court to distinguish between subsections (a) and (b) of § 7740.1, and so reaches a result that the Taylor court never considered.]

[Updated on 1/27/2023 to show that the Supreme Court reversed the Superior Court and Orphans’ Court.]

New Anti-Discrimination Ethics Rule

Posted on by June 19, 2020

The Supreme Court of Pennsylvania has adopted an amendment to Rule of Professional Conduct 8.4 that adds a new paragraph (g) to make it professional misconduct for a lawyer to “in the practice of law, by words or conduct, knowingly manifest bias or prejudice, or engage in harassment or discrimination, as those terms are defined in applicable federal, state or local statutes or ordinances, including but not limited to bias, prejudice, harassment or discrimination based upon race, sex, gender identity or expression, religion, national origin, ethnicity, disability, age, sexual orientation, marital status, or socioeconomic status.”

“Amendment of Rule 8.4 of the Pennsylvania Rules of Professional Conduct; No. 196 Disciplinary Rules Doc.” (6/8/2020), 50 Pa.B. 3011 (6/20/2020).

This is the same amendment published as “Proposed Amendments to the Pennsylvania Rules of Professional Conduct Relating to Misconduct,” 49 Pa.B. 4941 (8/31/2019), as previously reported.

Corrections to “Proposed Regulations on Administration Expenses and Excess Deductions”

Posted on by July 30, 2020

The article “Proposed Regulations on Administration Expenses and Excess Deductions” contained some errors or omissions that have now been corrected.

  • The article originally stated that the calculation of different kinds of excess deductions was not clear, and suggested that the fiduciary should have the same discretion to allocate different kinds of deductions against income in determining the character of excess deductions that the fiduciary has in allocating deductions to different kinds of income in determining the character of distributable net income. The proposed regulations actually allow the same kind of discretion, and the article has been corrected to reflect what the regulations actually provide.
  • The article originally reported that the proposed regulations would be prospective only. The preamble to the proposed regulations state that the regulations may be relied upon for tax years after 2017, so the regulations will be retroactive to that extent, and the article was corrected on 5/12/2020 to reflect that retroactive effect.
  • The article has been updated to include a suggestion as to how excess deductions that are administrative expenses described in § 67(e) (and so adjustments to gross income and not itemized deductions) can be reported by beneficiaries in Part III of Schedule E.

Intervention by Creditor

In a proceeding by the executor to recover assets allegedly taken from the estate, beneficiaries claiming interests in the contested assets have standing to object to intervention by a creditor, and the creditor will not allowed to intervene when the creditor has no interest in the particular assets and has only a general interest in the estate that will be adequately represented by the executor. The court also ruled that a party claiming an interest in an asset was barred from testifying by the Dead Man’s Act, but could testify to authenticate photographs, and that hearsay testimony was inadmissible even if presented in an affidavit. Benson, Jr. Estate, 10 Fid.Rep.3d 99 (Lycoming O.C. 2020).

Proof of Testator’s Signature

Testimony of bank employee that the signature of the witness to the will was her own, and that she would not have signed as witness if she had not seen the testator sign the will and had identified the testator, together with the testimony of the sole beneficiary of the will, who had lived with the testator for 20 years and was familiar with his signature, was sufficient to admit the will to probate, and contradictory evidence was relevant only if forgery was alleged at a later time. Walden Estate, 10 Fid.Rep.3d 95 (Philadelphia O.C. 2020).

[Note: The concluding statement by the court that the heir who testified that the signature was not that the of testator could challenge the will as a forgery “at a later time” is puzzling. The Register of Wills had denied probate, and on appeal the Orphans’ Court was ordering that the will be admitted to probate. At what “later time” could or should the will be challenged?]