2016 Budget: Tax Capital Gains at Death

Posted on by July 5, 2015

According to the Analytical Perspectives volume from President Obama’s fiscal 2016 budget proposal, the President will be proposing that transfers at death or by gift should result in the recognition of gain.  From the volume:

In the case of a gift, the gain would be taxable on the donor’s income tax return for the year in which the gift was made. In the case of death, the tax would be reported either on the decedent’s final income tax return or on a new income tax return created for this purpose. The proposal would exempt gain on household furnishings and personal effects (excluding collectibles) and allow a $100,000 exclusion of other gains recognized at death (which would be indexed for inflation and would be portable to a surviving spouse resulting in a $200,000 per couple exclusion). In addition, the current law ($250,000 per person) exclusion of capital gains from a principal residence would apply to all residences at death. If any share of a personal residence is bequeathed to a spouse, the spouse would be allowed the use of the first spouse’s exclusion of gain (that is, the $250,000 personal residence exclusion would be portable). The unlimited use of capital losses and carryforwards would be allowed against ordinary income on the decedent’s final income tax return, and the capital gains tax imposed at death would be deductible on the decedent’s estate tax return. Appreciated property given to charity would be exempt from the capital gains tax. Gifts or bequests to a spouse would carry the basis of the donor or decedent, and capital gain would not be realized until the spouse disposes of the asset or dies. The proposal would provide for the deferral of tax payment (with interest) on the appreciation of certain small family-owned businesses, until the business is sold or transferred to owners outside the family. The proposal would further allow a 15-year fixed-rate payment plan for the capital gains tax on assets other than liquid assets such as publicly traded financial assets transferred at death. This proposal would be effective for gifts, deaths, qualified dividends received, and other capital gains realizations in taxable years beginning after December 31, 2015.

This proposal would seem to suffer from the same problem as past proposals for carry-over basis, which is that it requires the determination of the tax basis for assets after the death of the owner.

The President is also proposing that Congress restore federal estate, gift, and generation-skpping tax rates and exclusions to their 2009 levels (meaning an exclusion of $3,500,000 and a top tax rate of 45%).

Claim for Non-Health Care Services by Nurse

Quantum meruit claim for lifetime services by licensed nurse practitioner allowed for two years before death (not barred by statute of limitations), even though she had already been compensated for nursing services, because her services were beyond those of a nurse or care giver, but were that of a “house manager/administrator/healthcare professional.”  Rubenstein Estate, 5 Fid. Rep. 3d 52 (O.C. Philadelphia Co. 2014) (Audit memorandum by Herron, J.)

Unconventional Sale of Property Approved

Contract for sale of real estate by executor was approved, and given the effect of a judicial sale under 20 Pa.C.S. § 3353, even though a third party might profit from the sale because the third party was willing to advance the funds needed to repair the property so that it could qualify for mortgage financing for the buyers.  Snyder Estate, 5 Fid. Rep. 3d 46 (O.C. Montgomery Co. 2014) (Opinion by Murphy, J.)

Mentally Ill Heir is Slayer

An intestate heir found guilty but mentally ill in first degree murder of the decedent was barred from inheriting under the Slayer’s Act, 20 Pa.C.S. § 8801 et seq.  McAndrew Estate, 131 A.3d 988, 2016 PA Super 4 (1/5/2016), aff’ng 5 Fid. Rep. 3d 43 (O.C. Montg. 2014) (Opinion by Ott, J.).

Agent May Act Independently of Co-Agent

Petition for emergency guardian denied when alleged incapacitated person had executed durable power of attorney, even though the two agents were unable to agree on a medical decision, because one agent had been making medical decisions and was willing to continue making medical decisions and the power of attorney authorized the agents to act jointly or independently without consulting the other.  Johnson Guardianship, 5 Fid. Rep. 3d 35 (O.C. Delaware Co., 2014) (Opinion by Kenney, J.)

Updated Inheritance Tax Forms

Posted on by July 5, 2015

The Pennsylvania Department of Revenue has announced the release of new inheritance tax forms designed to “enhance processing efficiency.”  Tax Update, No. 177 (Dec. 2014/Jan. 2015).

According to the Department:

The newly designed form has revised Ovals 4 through 11 and added Ovals 12, 13 and 14,as described below:
• Oval 4 will be used when the estate is claiming an agricultural exemption.
• Oval 11 will now be used to report non-probate transfers by the transferee that will not be reported on the probate return. Taxpayers should now use this oval in lieu of the Advance Payment Worksheet for such situations.
• Oval 13 will be used to indicate that the estate contains business assets, whether an exemption is being claimed or not.
• Oval 14 will indicate that the spouse is the sole beneficiary of an estate whereby the assets pass outright and not in trust.
In addition to the aforementioned changes, the requirement for the surviving spouse Social Security number has been eliminated; there is a new data-captured box for date stamp entry, which will enable the department to track returns based on the order in which they were filed; and the signature section has been moved to the bottom of the second page to accommodate the date stamp box.
The REV-1501 Instruction Book is being replaced by new REV-1500 Instructions, a seven-page document for the preparation and filing of the Inheritance Tax return, REV-1500. Separate instruction sheets corresponding to most of the individual schedules will be available.

The department has also created a new pamphlet, REV-720, containing general information regarding the Pennsylvania inheritance tax.
Forms and schedules are available at www.revenue.pa.gov
or by calling the department’s form ordering service at 1-800-362-2050.

Gifts by Agent in Excess of Annual Exclusion

When a power of attorney provided for “limited gifts” to persons “my attorney reasonably considers to be the natural objects of my bounty,” the agent should be surcharged for gifts that exceed the federal gift tax annual exclusion amount, but should not be surcharged for limited gifts to a daughter’s son, her son’s wife, her step-son, or her step-son’s wife, even though those persons were not beneficiaries under the principal’s will.  In re: Betty J. Fiedler, 132 A.3d 1010, 2016 PA Super 3 (1/5/2016) (en banc; applying statutes in effect before Act 95 of 2014), 2015 PA Super 10 (1/16/2015) (decision of three judge panel), aff’ng in part and rev’g in part, Betty J. Fiedler, In re, 4 Fid. Rep. 3d 90 (O.C. Lanc. 2013) (Opinion by Hoberg, J.).