Joint Trust Not Subject to Inheritance Tax

A joint trust created by a husband and wife which remained revocable by the surviving spouse (who was also the sole trustee) following the death of one spouse did not qualify as a “sole use trust” but was not a transfer subject to inheritance tax tax under 72 P.S. 9111(m), which exempts property owned by husband and wife with right of survivorship. In Re: Estate of Edward J. Potocar, 283 A. 3d 936, 662 C.D. 2020 (Pa. Cmwlth. 9/30/2022), aff’g, 11 Fid.Rep.3d 150 (Allegheny O.C. 2021).

[DBE Note: Not cited by the court is Miller Estate, 4 Fid.Rep.2d 346 (1984), which held that entireties property transferred to a joint trust remained entireties property, or McEwen’s Estate, 348 Pa. 23, 33 A.2d 14 (1943), which held that separate property transferred to a joint trust of husband and wife was fully taxable at the second death, and not the first, because the beneficial interests in the trust were held as tenants by the entireties. How the property that was transferred to the Potocar trust was held before the trust was created was not discussed by the Commonwealth Court.]

Legal and Delay Costs Imposed for Failure to Vacate

Claim for compensation for care of parents by one of their sons was denied for lack of “clear, direct, precise and convincing” evidence of an agreement for compensation, but claim for family exemption was allowed even though the decedent had been declared to be incapacitated and was moved out of the house she shared with her son. Both legal fees and costs resulting from a delay in the sale of the house were imposed on the son for failing to vacate the premises, and the son’s objections to the account and petition for adjudication were dismissed as untimely. Harper Estate, 12 Fid.Rep.3d 319 (O.C. Delaware 2021), aff’d 2307 EDA 2021 (Pa. Super. 7/19/2022) (non-precedential).

Estate Recovery Against Annuity

The decedent had purchased an annuity, and had named “Mildred Williams – Friend,” as the beneficiary, but failed to provide a Social Security number or other identifying information for the beneficiary. The decedent also failed to disclose the annuity to Department of Human Services (DHS) when applying for Medicaid. The decedent’s estate requested that the insurance company pay the annuity to the estate in order to pay the estate recovery claim of DHS, but the insurance company instead paid the annuity to the Bureau of Unclaimed Property after it was unable to locate “Mildred Williams.” The Bureau denied a claim for the funds by the estate, and the Commonwealth Court affirmed the denial, but remanded for a determination of whether the Orphans’ Court had entered a valid decree for the payment of the annuity to the estate before the funds were delivered to the Bureau. Estate of Doretha Green v. Bureau of Unclaimed Property, ___ A.3d ___, No. 749 C.D. 2021 (Cmwlth Ct. 9/21/2022).

Injunction Without Hearing Vacated

The Orphans’ Court erred, and abused its discretion, when it entered an injunction against a trustee prohibiting the payment of legal fees and costs without first hearing evidence to determine if a breach of trust had occurred or may occur and whether an injunction was necessary to prevent immediate and irreparable harm. The court also erred in enjoining the exercise of a power of appointment based on alleged misconduct by the trustee when the power of appointment was held in a nonfiduciary capacity and was separate and distinct from the duties as trustee. In re: Trust under Deed of Trust of Nell G. Jack, 2022 PA Super 158, ___ A.3d ___ (9/14/2022).

Unofficial Inflation Adjustments for 2023

With the release of the Chained Consumer Price Index (C-CPI-U) for August 2022, it’s possible to calculate various inflation adjustments for 2023. The following are the significant federal estate planning numbers, with the numbers for 2022 shown in parentheses:

  • The federal estate tax base applicable exclusion amount (and generation-skipping tax exemption) will be $12,920,000 (was $12,060,000 for 2022).
  • The annual gift tax exclusion will be $17,000 (was $16,000).
  • The annual gift tax exclusion for a non-citizen spouse will be $175,000 (was $164,000).
  • The “2 percent” amount for purposes of section 6166 will be $1,750,000 (was $1,640,000).
  • The limitation on the special use valuation reduction under section 2032A will be $1,310,000 (was $1,230,000).
  • The top (37%) income tax bracket for estates and trusts will begin at $14,450 (was $13,450).
  • The alternative minimum tax exemption for estates and trusts will be $28,400 (was $26,500), and the phaseout of the exemption will start at $94,600 (was $88,300).

The Internal Revenue Service will publish the official inflation adjustments in a Revenue Procedure that will probably appear in 4-8 weeks.

Realty Transfer Tax on Remainders (Corrected)

It was previously reported, in “Realty Transfer Tax on Remainders,” that the Department of Revenue had published a new table of life estate and remainder factors based on an interest rate of 2.6%, to be effective July 1, 2022. The factors were actually based on an interest rate of 1.4%, but the original publication erroneously referred to “Table S(2.6).” The Department has republished the factors with a corrected reference to “Table S.” See “Life Estate and Remainder Factors; Pennsylvania Realty Transfer Tax (Revised),” 52 Pa.B. 5877 (7/10/2022), effective July 1, 2022, correcting 52 Pa.B. 3382 (6/11/2022).

Trustee Fees Did Not Warrant Termination of Charitable Trust

The Superior Court has affirmed a summary judgment in favor of the trustee of a perpetual charitable trust, and against the charitable beneficiary, finding that the trustee fees of approximately 28% of the trust income are not “unreasonably out of proportion” within the meaning of 20 Pa.C.S.A. § 7740.3(e) and so termination of the trust is not warranted. In re: Trust B Under Agreement of Richard H. Wells dated September 28, 1956, ___ A.3d ___, 2022 PA Super 154 (9/7/2022), aff’d, ___ A.3d ___, 5 WAP 2023 (Pa. 10/17/2023).

Rejected Petition Not Appealable

When a petition for letters is rejected by the Register of Wills and the Orphans’ Court refuses to grant letters, the finding by the court that the petitioner is not entitled to letters is not an appealable order because there was no action by the Register from which to appeal. In re Estate of Thomas Wisniewski, 2022 PA Super 144, ___ A.3d ___ (8/22/2022).

[DBE Note: Although the Superior Court was clear that that the Orphans’ Court could not “clothe itself with jurisdiction by ordering backdated docketing of an unfiled petition and then deeming that petition denied” by the Register, the Superior Court never explained what the petitioner should have done after the Register refused to accept the petition for letters. Was the problem merely that the Orphans’ Court never held a hearing to determine whether the Register had in fact rejected the petition? Or was the problem that there was no record by the Register of any petition and so no “action” of the Register to appeal? If the problem was the latter, and the filing with the Register is a jurisdictional requisite for an appeal to the Orphans’ Court, what is the remedy if the Register refuses to accept and act on a petition? Petition for writ of mandamus against the Register?]

[The failure to obtain letters for the administration of the estate lead to the dismissal of an appeal to the Commonwealth Court. Wisniewski v. Frommer et al., No. 912 C.D. 2021 (Pa. Cmwlth. Ct. 2/16/2023.]