Retroactive Modification of GRAT Allowed

Posted on by December 27, 2016

The IRS has issued another private letter ruling granting retroactive tax effect to a judicial modification of a trust.

In PLR 201652002, the IRS granted retroactive effect to a court “reformation” under Uniform Trust Code § 416, which allows a court to “modify” a trust in order to carry out the settlor’s tax objectives.  The trusts in question were expressly intended to be grantor retained annuity trusts, but failed to prohibit the trustee from issuing a note or other financial instrument in satisfaction of an annuity payment, which failure was a violation of Treas. Reg. § 25.2702-3(d)(6).  The IRS concluded that the judicial reformation was to correct a “scrivener’s error,” and that as a result of the reformation, the grantor’s interest in the trust was a qualified interest as of the date the trusts were created.  This was a generous result, because for the reasons explained in my article “Tax Effects of Retroactive Reformations and Modifications,” the taxpayer should have sought a reformation under UTC § 415 and not a trust modification under UTC § 416.

Self-Settled Special Needs Trusts

Posted on by December 23, 2016

The “21st Century Cures Act,” H.R. 34, which was signed into law on December 13, 2016, becoming P.L. 114-255, made a change to the Social Security Act in order to allow people with disabilities to create their own Medicaid-qualifying trusts without court approval.

Specifically, section 5007 of the Act provides as follows::

‘SEC. 5007. FAIRNESS IN MEDICAID SUPPLEMENTAL NEEDS TRUSTS.
‘(a) IN GENERAL.—Section 1917(d)(4)(A) of the Social Security Act (42 U.S.C. 1396p(d)(4)(A)) is amended by inserting ‘‘the individual,’’ after ‘‘for the benefit of such individual by’’.
‘(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to trusts established on or after the date of the enactment of this Act.’

Before this amendment, the relevant section of the Social Security Act referred to a trust established “for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court….”  So persons with disabilities who were nevertheless legally competent could add their assets to a trust created by a parent, grandparent, etc., but could not establish the trust themselves.

Applicable Federal Rates for 2016

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— Short Term Rates for 2016 —

MonthAnnualSemiann.QuarterlyMonthly
Jan.0.75%0.75%0.75%0.75%
Feb.0.81%0.81%0.81%0.81%
March0.65%0.65%0.65%0.65%
April0.70%0.70%0.70%0.70%
May0.67%0.67%0.67%0.67%
June0.64%0.64%0.64%0.64%
July0.71%0.71%0.71%0.71%
Aug.0.56%0.56%0.56%0.56%
Sept.0.61%0.61%0.61%0.61%
Oct.0.66%0.66%0.66%0.66%
Nov.0.68%0.68%0.68%0.68%
Dec.0.74%0.74%0.74%0.74%

— Mid Term Rates for 2016 —

MonthAnnualSemiann.QuarterlyMonthly
Jan.1.81%1.80%1.80%1.79%
Feb.1.82%1.81%1.81%1.80%
March1.48%1.47%1.47%1.47%
April1.45%1.44%1.44%1.44%
May1.43%1.42%1.42%1.42%
June1.41%1.41%1.41%1.41%
July1.43%1.42%1.42%1.42%
Aug.1.18%1.18%1.18%1.18%
Sept.1.22%1.22%1.22%1.22%
Oct.1.29%1.29%1.29%1.29%
Nov.1.33%1.33%1.33%1.33%
Dec.1.47%1.46%1.46%1.46%

 — Long Term Rates for 2016 —

MonthAnnualSemiann.QuarterlyMonthly
Jan.2.65%2.63%2.62%2.62%
Feb.2.62%2.60%2.59%2.59%
March2.33%2.32%2.31%2.31%
April2.25%2.24%2.23%2.23%
May2.24%2.23%2.22%2.22%
June2.24%2.23%2.22%2.22%
July2.18%2.17%2.16%2.16%
Aug.1.90%1.89%1.89%1.88%
Sept.1.90%1.89%1.89%1.88%
Oct.1.95%1.94%1.94%1.93%
Nov.2.07%2.06%2.05%2.05%
Dec.2.26%2.25%2.24%2.24%

Cumberland County Fees

Cumberland County has published new fees schedules for the Register of Wills and the Orphans’ Court.  Both schedules are effective 1/1/2017.

“Register of Wills Fee Schedule; 21-16-1253,” 46 Pa.B. 7812 (Cumberland Co. 12/17/2016).

“Orphans’ Court Fee Schedule; 21-16-1253,” 46 Pa.B. 7811 (Cumberland Co. 12/17/2016).

 

Election by Alleged Common Law Spouse is Time-Barred

An attempted election against a will, made more than six months after probate, is properly dismissed on summary judgment because the claimant must have known whether she and the decedent agreed to be married and so the six month limitation in 20 Pa.C.S. § 2210(b) was not tolled by alleged fraud by the decedent’s children in repeatedly telling her she was merely a “girlfriend.”  In re Est. of Tito, 150 A.3d 464, 2016 PA Super 245 (11/15/2016), app. den., 168 A.3d 1274 (2017).

Proposed Guardianship Rules

Posted on by December 18, 2016

The Orphans’ Court Procedural Rules Committee has released a Notice of Proposed Rulemaking with new proposed rules for guardianship proceedings.  “Proposed Amendment of Pa. O.C. Rule 1.5, Proposed Rescission of Pa. O.C. Rules 14.1—14.5 and Orphans’ Court Forms G-01—G-04, Proposed Adoption of New Pa. O.C. Rules 14.1—14.12 and Orphans’ Court Forms G-01—G-07 and Proposed Amendment of the Appendix of Forms,” 46 Pa.B. 7934 (12/17/2016).

The deadline for comments is February 27, 2017.

Misuse of UTMA Custodial Property

Mother used Uniform Transfers to Minors custodial funds to purchase a home in her own name.  Although children lived in home for at least part of the time, mother was ordered to pay over to the children the entire proceeds of the sale of the home, which was more than the original amount of the custodial accounts.  However, award of attorney fees against mother were denied.  Werner v. Werner, 2016 PA Super 221 (10/7/2016).