Inheritance tax deductions were not allowed to the estate of the beneficiary of a trust for amounts paid as reimbursements for excessive trust distributions and for legal fees paid in accordance with indemnification agreements that were signed by the beneficiary in connection with the distributions. The distributions were made without court approval and the court found that the indemnification agreements were not “bona fide and for an adequate and full consideration.” Estate of Scaife v. Commonwealth of Pennsylvania, 2 Fid.Rep.4th 61 (Westmoreland O.C. 2023).

[DBE Comment: The denial of the deduction for the legal fees seems correct because the fees were incurred in what amounted to a dispute between beneficiaries of a trust over distributions from the trust. See 72 P.S. § 9230(3) and “Non-Reimbursable Legal Fees of Fiduciaries.” The denial for a deduction for the amounts repaid to the trustees is less certain, because that would seem to be a debt of the beneficiary’s estate if the distributions from the trust were improper and the trustees could have recovered those funds without any indemnification agreement, but that issue was apparently not raised by the parties and not addressed by the court.]