Trustee Properly Transferred Principal to Income

Posted on by January 2, 2026

Although the trust instrument restricted distributions of principal, the trustee nevertheless had the power under a provision of the Uniform Principal and Income Act (“UPIA”), 20 Pa.C.S. § 8104, to allocate amounts of principal to income, and distribute that income to the beneficiary entitled to the income, in order to be fair and reasonable to the beneficiaries, and the allocations made by the trustee were not an abuse of discretion because the increases in the value of the principal were disproportionate to the trust’s production of income. The trust instrument did not forbid the adjustments made by the trust (and appeared to authorize them; see note below), and the UPIA applied to the trust even though it was created before the enactment of the UPIA because section 14 of the Act of May 15, 2002, No. 50, which enacted the UPIA, states that the act shall apply to trusts “existing on or after the effective date of this act.” In re: Hess Kline, Deceased, ___ A.4th ___, 2025 PA Super 295 (12/31/2025), aff’g, Kline Estate, 2 Fid.Rep.4th 339 (Montgomery O.C. 2024).

[DBE Note: This appears to be the first appellate court opinion in Pennsylvania affirming an adjustment to income and principal under § 8104, and it affirms that the statute means what most practitioners understood it to mean. However, the Superior Court concluded that the trust instrument (the decedent’s will) authorized the allocation of principal to income even without the UPIA, and I disagree with that conclusion. The sentence in question authorized the fiduciaries to claim items as either income tax or estate tax deductions, and “to make or not make adjustments or apportionments among the beneficiaries or as between principal and income.” I believe that the intent of the provision was to avoid the kind of mandatory “equitable adjustment” that might otherwise be required under decisions such as Matter of Warms, 140 N.Y.S.2d 169 (1955), and In Re Bell’s Estate, 7 Fid.Rep. 1 (Pa. O.C., 1956), when principal expenses are claimed as income tax deductions (or vice versa), and that there was no intent to create a new power of adjustment in other circumstances. The court held that the trustee had the power of adjustment under § 8104 regardless, and the counsel for the appellant might not have explained the Warms issue very well, so the court’s discussion of adjustments allowed by the will may hopefully be ignored by other courts in the future.]

Incapacity Due to Impaired Short-Term Memory

Posted on by January 2, 2026

The Orphans’ Court properly found that the alleged incapacitated person (“AIP”) was incapacitated and in need of guardianship services, notwithstanding the testimony of the AIP to the contrary, based on medical testimony that the AIP had impaired short-term memory, so that he lacked the ability to make medical, self-care, and financial decisions, as well as the court’s own observations of the AIP and his difficulty in recalling events and in responding to his own counsel’s questions. The evidence also supported the decision of the Orphans’ Court not to direct that the AIP be returned to his home under the care of a guardian as a less restrictive alternative. In re: Person and Estate of J.P.D., 987 EDA 2025 (Pa. Super. 12/30/2025) (non-precedential).

Problems with “Chatbots”

Posted on by December 29, 2025

Many legal commentators and publications have noted that there are problems with relying on “generative artificial intelligence” or “large language models” such as “ChatGPT,” which are often referred to (somewhat derisively) as “chatbots.” The problems are usually described as “hallucinations” when a chatbot has been asked a legal question or is asked to draft of legal memo and provides a citation to a court opinion that simply does not exist. But there are other problems that are more subtle and more fundamental.

Chatbots simply manipulate words based on perceived patterns in documents that have been used to “train” them. They have no understanding of the meaning of words or any understanding of legal concepts. So even if you can train a chatbot to not fabricate citations to nonexistent court opinions, there is still no guarantee that it will accurately describe the real court opinions it cites.

This more subtle kind of error is described in Jarrus v. Governor of Michigan, No. 25-cv-11168 (USDC ED Mich. 12/2/2025). In an opinion and order on the possible imposition of sanctions for the use of Chat GPT, Judge F. Kay Behm provides three examples of citations that appeared in a pleading filed by a pro se litigant that were real citations to real court opinions but were cited for propositions that the opinions did not support. The court explained the problem as follows:

“[A]lthough Chat GPT generated ‘holdings’ that looked like they could plausibly have appeared in the cited cases, in fact it overstated their holdings to a significant degree. And while a litigant might get away with similar overstatements because they could, perhaps, reason their way to showing how a case’s stated holding might extend to novel situations, an LLM does not reason in the way a litigant must. To put it in a slightly different way, LLMs do not perform the metacognitive processes that are necessary to comply with Rule 11. LLMs are tools that “emulate the communicative function of language, not the separate and distinct cognitive process of thinking and reasoning.” Benjamin Riley, Large language mistake, The Verge https://www.theverge.com/ai-artificial-intelligence/827820/large-language-models-ai-intelligence-neuroscience-problems [https://perma.cc/7EHD-PLLZ]. When an LLM overstates a holding of a case, it is not because it made a mistake when logically working through how that case might represent a ‘nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;’ it is just piecing together a plausible-looking sentence — one whose content may or may not be true.”

Legal publishers are putting together their own generative AI systems which are presumably designed to avoid the fictitious citation problem, but they cannot avoid the problem which is inherent to large language model technology, which is that the systems are not capable of doing any legal reasoning, but are only constructing “plausible-looking sentences” based on the documents that have been used to train them.

With better training methods, document drafting may be an effective use for AI technology (in the late 1980s, I co-authored a document drafting system that used what was then considered AI technology, but was not able to market it successfully), but at this time the use of generative AI for legal research or drafting legal briefs or memoranda should be considered only with an understanding of it’s considerable limitations.

Electronic Wills Co-Sponsorship Memo

Posted on by December 29, 2025

As previously reported, the Pennsylvania Bar Association, acting on a joint report and recommendation of the Real Property Probate and Trust Law and Elder Law Sections, is now supporting the introduction and passage of legislation authorizing electronic wills and other estate-related documents in Pennsylvania.

A co-sponsorship memo from Lisa Baker, the Senator from District 20, has been circulating since 12/9/2025 asking for support from other Senators for the legislation (which has not yet been introduced).

Applicable Federal Rates for 2025

Posted on by December 17, 2025

← Previous Year | Current Year | Following Year →

HTML Version Copyright 2018-2026 Daniel B. Evans. All rights reserved.

— Short Term Rates for 2025 —

MonthAnnualSemiann.QuarterlyMonthly
Jan.4.33%4.28%4.26%4.24%
Feb.4.34%4.29%4.27%4.25%
March4.31%4.26%4.24%4.22%
April4.16%4.12%4.10%4.09%
May4.05%4.01%3.99%3.98%
June4.00%3.96%3.94%3.93%
July4.12%4.08%4.06%4.05%
Aug.4.03%3.99%3.97%3.96%
Sept.4.00%3.96%3.94%3.93%
Oct.3.81%3.77%3.75%3.74%
Nov.3.69%3.66%3.64%3.63%
Dec.3.66%3.63%3.61%3.60%

— Mid Term Rates for 2025 —

MonthAnnualSemiann.QuarterlyMonthly
Jan.4.24%4.20%4.18%4.16%
Feb.4.52%4.47%4.45%4.43%
March4.46%4.41%4.39%4.37%
April4.21%4.17%4.15%4.13%
May4.10%4.06%4.04%4.03%
June4.07%4.03%4.01%4.00%
July4.19%4.15%4.13%4.11%
Aug.4.06%4.02%4.00%3.99%
Sept.4.04%4.00%3.98%3.97%
Oct.3.87%3.83%3.81%3.80%
Nov.3.83%3.79%3.77%3.76%
Dec.3.79%3.75%3.73%3.72%

 — Long Term Rates for 2025 —

MonthAnnualSemiann.QuarterlyMonthly
Jan.4.53%4.48%4.46%4.44%
Feb.4.86%4.80%4.77%4.75%
March4.82%4.76%4.73%4.71%
April4.61%4.56%4.53%4.52%
May4.62%4.57%4.54%4.53%
June4.77%4.71%4.68%4.66%
July4.90%4.84%4.81%4.79%
Aug.4.82%4.76%4.73%4.71%
Sept.4.83%4.77%4.74%4.72%
Oct.4.73%4.68%4.65%4.64%
Nov.4.62%4.57%4.54%4.53%
Dec.4.55%4.50%4.47%4.46%

PBA Supports Inheritance Tax Exemption for All 529 Accounts

Posted on by December 11, 2025

On November 21, 2025, the House of Delegates of the Pennsylvania Bar Association approved a joint recommendation of the Real Property, Probate and Trust Law and Elder Law Sections of the PBA to support HB 256, which will exempt from Pennsylvania inheritance tax all educational savings accounts (usually known as “529 accounts” or “529 plans”), regardless of whether the account was created under the laws of Pennsylvania or another state.

The complete Report and Recommendation of the two PBA sections explains the background of HB 256, which is that the Inheritance and Estate Tax Act does not include any exemption from inheritance tax for educational savings plans described in section 529 of the Internal Revenue Code. Pennsylvania has enacted its own plan for educational savings account to qualify under section 529, and that statute exempts accounts under that plan from all taxation, including inheritance tax. Because there is no general exemption for 529 plans, educational savings accounts created under the plans of other states remain subject to inheritance tax.

One Orphans’ Court judge has held that an inheritance tax exemption only for Pennsylvania 529 accounts violates the uniformity clause of the Pennsylvania Constitution. Calihan Estate, 2 Fid.Rep.4th 1, No. 0024 of 2021 (Allegheny O.C. 11/7/2023). However, the Pennsylvania Department of Revenue is not following that decision for estates in other counties.

HB 256 would amend the inheritance tax act to exempt from inheritance tax all 529 accounts, regardless of what state law was used to create the account, and the PBA now supports that legislation (or any similar legislation that might be proposed in the future).

[12/11/2025 Revision: The original version of this post included a link to the report and recommendation of the PBA two sections, and that link has been deleted at the request of the PBA.]

Act 50 of 2025 Increases Some Amounts Payable without Letters

Posted on by November 30, 2025

House Bill 1176 has passed both houses of the legislature and has been signed into law by the governor, becoming the Act of November 24, 2025, No. 50. The two sections of the act can be summarized as follows:

Section 1 of the act amends 20 Pa.C.S. § 2103(a)(6) to change the ultimate intestate heir (who would take in the event that there is no surviving spouse and no surviving issue, parents, brothers or sisters, issue of brothers or sisters, grandparents or issue of grandparents) from the Commonwealth of Pennsylvania to an “endowed community fund” located in the municipality, school district, or county in which the decedent resided. If there is no such “endowed community fund” (as further defined by the statute), the last intestate heir is the Commonwealth. This part of the act takes effect in 60 days (which presumably means it applies to the estates of intestates dying 60 days or more after enactment, because intestate shares are usually determined based on the facts and laws as of the date of death).

Section 2 of the act amends two of the subsections of 20 Pa.C.S. § 3101 (“Payments to family and funeral directors”) to increase the amounts that may be paid without any grant of letters:

  • In subsection (b) (“Deposit account”), the maximum total amount on deposit in the name of the decedent at a bank or other financial institution that can be paid to a funeral director or family member is increased from $10,000 to $20,000. This change is effective in 60 days, which may refer to the date of the payment and not the date of death.
  • In subsection (e) (“Unclaimed property”), the maximum amount held by the State Treasurer as unclaimed property of a decedent that can be paid to a family member without any grant of letters is increased from $11,000 to $20,000. This change is effective in 180 days, which may refer to the date of the claim filed with the Treasurer not the date of death.

The maximum amounts which may be paid under other subsections of § 3101 remain unchanged, so wages, salaries, and employee benefits are still limited to $10,000 under subsection (a), a patient’s care account is still limited to $10,000 under subsection (c), and life insurance payable to the estate is still limited to $11,000 under subsection (d).

New Montgomery County Fee Schedules

Posted on by November 21, 2025

Montgomery County has published new fee schedules for the Register of Wills and Clerk of the Orphans’ Court, both effective January 1, 2026. “Register of Wills Fee Schedule; No. 2025-00001” (11/5/2025), 55 Pa.B. 7950 (11/22/2025); “Clerk of Orphans’ Court Fee Schedule; No. 2025-00002” (11/5/2025), 55 Pa.B. 7947 (11/22/2025).

Fiduciary Exception Not Applicable to Civil Action against Beneficiary

Posted on by November 16, 2025

The fiduciary exception to the attorney-client privilege does not apply to attorney records relating to a civil action brought by a trustee against one of the beneficiaries to enforce an indemnification agreement entered into for a distribution to that beneficiary, and so those records remain subject to attorney-client privilege. In re: First and Partial Account of Gerald L. Hempt, Trustee for the Max C. Hempt QTIP Trust, ___ A.4th ___, 2025 PA Super 2054 (11/13/2025).