The statute of limitations for an action for legal malpractice in the administration of an estate began to run when a declaratory judgment action was filed to correct the alleged legal errors, and not when the court ruled in favor of the declaratory judgment and confirmed the errors. McDonald v. McCreesh, 155 Montg. Law Reptr. 285 (Montgomery Co. C.P. 3/12/2018), aff’d, 1128 EDA 2018 (Pa. Super. 12/27/2018).
A new Webcalculator for “grantor retained annuity trusts” (GRATs) is now up and running.
The Internal Revenue Service has released Rev. Proc. 2018-57, 2018-49 I.R.B. ___ (12/3/2018), with the official inflation adjustments for 2019. The published adjustments for income taxes differ in many cases from the inflation adjustments that were published here in September, after the release of the Chained Consumer Price Index (C-CPI-U) for August 2018, but the estate and gift tax numbers turned out as predicted.
The following are the significant federal estate planning numbers, with the numbers for 2018 shown in parentheses:
- The base applicable exclusion amount (and generation-skipping tax exemption) will be $11,400,000 (was $11,180,000 for 2018).
- The annual gift tax exclusion will be $15,000 (was $15,000, so unchanged).
- The annual gift tax exclusion for a non-citizen spouse will be $155,000 (was $152,000).
- The “2 percent” amount for purposes of section 6166 will be $1,550,000 (was $1,520,000).
- The limitation on the special use valuation reduction under section 2032A will be $1,160,000 (was $1,140,000).
- The top (37%) income tax bracket for estates and trusts will begin at $12,750 (was $12,500).
- The maximum zero rate amount for capital gains for estates and trusts will be $2,650, and the maximum 15-percent rate amount will be $12,950.
- The alternative minimum tax exemption for a estates and trusts will be $25,000 (was $24,600), and the phaseout of the exemption will start at $83,500 (was $81,900).
The IRS has issued another private letter ruling granting retroactive tax effect to a judicial reformation of a trust which the IRS agreed did not carry out the intentions of the settlor due to an error by the attorney who prepared the trust document.
In PLR 201843007, the IRS granted retroactive effect to a court reformation of a trust’s “crummey powers,” which allowed the settlor’s children to withdraw the entire amount of each contribution to the trust, and provided for the withdrawal rights to lapse in full at the end of the year (or 31 days after the gift, whichever was later). This was contrary to the goals of the settlor, because the withdrawal rights were not limited to the annual gift tax exclusions, and the lapses were not limited to the greater of $5,000 or 5% of the trust principal, with the result that the children were deemed to have made gifts to the trust when their withdrawal rights lapsed. The IRS concluded that the judicial reformation was to correct a “scrivener’s error,” and that as a result of the reformation, the children did not have general powers of appointment and did not make gifts to the trust. This ruling is consistent with the principles explained in my article “Tax Effects of Retroactive Reformations and Modifications.” See also my article “Drafting Crummey Powers” for additional information about why the trust language was defective and why reformation was needed.
The following article is a combination of materials created for the Pennsylvania Bar Institute’s Estate Law Institute for 2018. The section on sole use trusts is adapted from the “overview” and “details” texts that are part of the Sole Use Trust…
The Internal Revenue Revenue has announced cost-of-living changes to limitations on benefits and contributions for retirement plans in 2019. Notice 2018-83, 2018-47 I.R.B. ___ (11/19/2018).
Among the most common limitations are the following changes:
- The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.
- The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000.
- The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
S.B. 1886 was signed into law by Governor Wolf on October 24, 2018, becoming Act 114 of 2018.
The act amends 20 Pa.C.S. § 5521(c) to require Clerks of the Orphans’ Court to report delinquencies in the filing of annual reports by guardians of incapacitated persons to the court, and to require the Orphans’ Courts to develop procedures for the examination of annual reports “to ensure that the guardians are acting in the best interests of the incapacitated persons.”
The act takes effect in 60 days.
S.B. 1885 was signed into law by Governor Wolf on October 24, 2018, becoming Act 113 of 2018.
The act amends 20 Pa.C.S. § 3175 to allow Registers of Wills to increase the bonds required of personal representatives after inventories or inheritance tax returns have been filed. However, a personal representative may elect not to post additional security if waivers are obtained from all parties in interest.
The act takes effect in 60 days.
S.B. 180 was signed into law by Governor Wolf on October 23, 2018, becoming Act 90 of 2018.
The act makes a number of changes to the disposition of decedent’s remains and makes extensive changes to Chapter 86, on anatomical gifts. A complete description of all the changes is beyond the scope of this item, but the following changes are noteworthy:
- 20 Pa.C.S. § 305(d) to provide that, if more than two persons with equal standing as next of kin disagree on the disposition of the decedent’s remains, the decision is made by the majority. If there is no majority, the court shall make the final determination. This change takes effect in 60 days.
- Many of the references to organ donation in the P.E.F. Code (20 Pa.C.S.) have been broadened to include not only specific organs but also donations of hands, facial tissue, limbs, or other “vascularized composite allographs.”
- The explanations that accompany the sample forms of health care power of attorney and living wills (20 Pa.C.S. § 5471) have been changed by adding new information about organ and tissue donations, and directions for organ and tissue donations have been included the sample form. Other sections have been changed to limit the power of a health care agent to make anatomical gifts unless expressly authorized.
- A number of changes have been made to the definitions in 20 Pa.C.S. Ch. 86 (“Anatomical Gifts”) and new definitions have been added.
- A new Subchapter D devoted to donations of tissue and “vascularized composite allographs” (see above) has been added to Chapter 86, with special rules for those kinds of donations.
- Subchapter C of Chapter 86 (“Corneal Transplants”) has been deleted, probably because those kinds of donations are now considered part of Subchapter D, on tissue donations.
- Both the persons entitled to make anatomical gifts (§ 8611(b)), and the persons entitted to receive them (§ 8612(a)) have been revised.
- The manner and procedures for making anatomical gifts (§ 8613) have been revised to facilitate designations on driver’s licenses and registries, and various other sections revised on procedures and possible liabilities relating to anatomical gifts.
Many of the amendments to Chapter 86 take effect immediately. The remainder take effect when the Department of Transportation has published notice of the establishment of websites and a registry to carry out relevant provisions of the act.
The Disciplinary Board has proposed amending the Rules of Disciplinary Enforcement to shorten the times for penalties after the annual due date for attorney registration.
Attorney registrations are due July 1, and a nonwaivable penalty is imposed for registrations not received by July 31, with an additional penalty imposed on attorneys who fail to register by August 31.
Noting that on-line registration has made it easier for attorneys to comply with the annual registration deadline, and that attorneys are sent reminders by email, the Board has proposed moving up the late registration dates from July 31 to July 16, and from August 31 to August 1.
Comments may be submitted by November 26, 2018.
“Proposed Amendments to the Pennsylvania Rules of Disciplinary Enforcement Relating to Annual Registration of Attorneys,” 48 Pa.B. 6784 (10/27/2018).