New Actuarial Factors

Posted on by May 9, 2022

On May 5, the Treasury Department published new proposed regulations for the valuation of life estates, remainders, and unitrust interests based on a new mortality table from the 2010 census. “Use of Actuarial Tables in Valuing Annuities, Interests for Life or a Term of Years, and Remainder or Reversionary Interests,” REG-122770-18, 87 F.R. 26806 (5/5/2022).

The Internal Revenue Service also put on their website spreadsheets with new factors based on Table 2010CM. See “Actuarial Tables,” https://www.irs.gov/retirement-plans/actuarial-tables.

Some observations about the new tables and proposed regulations:

  • The tables reflect longer life expectancies, and so life interests will generally be worth more, while remainder interests will generally be worth less.
  • The proposed regulations and tables will be effective on the first day of the first month after final regulations are published. A proposed transitional rule allows donors and personal representatives to apply the new tables retroactively to gifts and deaths on or after January 1, 2021. Presumably, amended (or supplemental) tax returns can be filed to elect to use the new tables.
  • For calculations that would require a linear interpolation of two factors, the regulations allow “more exact” calculations using computer software. So, for example, if the adjusted payout rate for a charitable remainder unitrust is not evenly divisible by two-tenths of a percent, such as 5.5%, a factor can be calculated using a payout of 5.5% instead of using the tables to find factors for 5.4% and 5.6% and then calculating an interpolated factor (which for 5.5% would be the average of the factors for 5.4% and 5.6%).

Webcalculators (wcalcs.com) has already been updated to allow the use the new tables to determine factors for life estates, remainders, annuities, and unitrust interests, and to calculate remainder values for charitable remainder unitrusts (“CRUTs”) and charitable remainder annuity trusts (“CRATs”). Factors that are in the new tables, such as factors for one or two lives, and the shorter of a term and one life, are available without a paid subscription, although registration is still required.

Creditor Denied Letters of Administration

The Register of Wills had “good cause” to deny letters of administration to a creditor who had engaged litigation against the decedent during his lifetime, and whose claims were still unresolved, because the interests of the creditor were “hostile” to the estate. In re: Estate of James E. Scwhartz, 275 A.3d 1032, 2022 PA Super 80 (5/5/2022), aff’ng 11 Fid.Rep.3d 210 (Bucks O.C. 2021).

Notice of Inheritance Tax on Joint and TOD Accounts

Posted on by April 29, 2022

Reports are circulating that the Pa. Dept. of Revenue has told Registers of Wills that it will no longer be issuing Forms REV-1543 to the surviving owners of joint bank accounts or the beneficiaries of “in trust for” or “pay on death” accounts in order to collect the inheritance tax believed to be owed when one of the owners of the account dies.

Banks and other financial institutions are required to notify the Dept. of Revenue when an owner of a joint or “in trust for” account dies, as provided by section 2147 of the Inheritance and Estate Tax Act, 72 P.S. § 9147. It has been the practice of the Department to then give notice to the surviving joint owners of the tax that may be owed (by applying the highest possible inheritance tax rate of 15%), and to give them an opportunity to claim a different tax rate, claim deductions, or make a payment within the 3 month period that allows a 5 percent discount. This was done through a Form REV-1543.

Instead of issuing a Form REV-1543, the Department apparently intends to wait 13 months after death and, if no inheritance tax return has been filed (or a return is filed that does not report the joint account), issue a notice of appraisement for the tax believed to be owed, together with interest.

It is not clear whether this change in procedure is temporary or permanent. One practitioner has reported that this is a temporary stoppage due to a shortage of envelopes.

This change in procedure will be detrimental to those members of the public who have not consulted a lawyer about the administration of the estate or about the inheritance tax liabilities of the estate and beneficiaries because it will deprive them of (a) an opportunity to prepay the tax and claim the 5% discount, (b) a relatively easy way of claiming deductions for debts and expenses when there is no estate administration, and (c) force them to file a protest to a notice of appraisement if they have deductions or if a different tax rate should apply, which will be more complicated than responding to a Form REV-1543.

Proposed Changes to In Forma Pauperis Rules

Amendments have been proposed to various rules of civil procedure that would amend and consolidate the rules for waiving fees and costs (proceeding in forma pauperis) as Rule of Judicial Administration 1990, replacing Rule of Civil Procedure 240. Under the amended rules, Pa. R.O.C.P. 1.40 would be amended to cross-reference and incorporate Pa. R.J.A. 1990 instead of Pa. R.C.P. 240.

Comments should be submitted to rulescommittees@pacourts.us by June 30, 2022.

“Proposed Adoption of Pa.R.J.A. 1990; Amendment of Pa.R.Civ.P. 240; Adoption of Pa.R.Civ.P.M.D.J. 206.1 and Amendment of Pa.R.Civ.P.M.D.J. 206; Amendment of Pa.R.O.C.P. 1.40; Amendment of Pa.R.Crim.P. 460, 490, 490.1, 790, and 791;
Adoption of Pa.R.J.C.P. 174 and 1174; and Adoption of Pa.R.A.P. 550 and 1614, Amendment of Pa.R.A.P. 551—554, and Recission of Pa.R.A.P. 555—561 with Correlative Amendment of Pa.R.Civ.P. 205.6, 229.2, 1018, 1041.1, 1308, 1313, 1920.62, 1940.5, 2028, and 4003.5; Pa.R.Civ.P.M.D.J. 1008 and 1013; Pa.R.Crim.P. 704, 708, 720, 900, and 904; and Pa.R.A.P. 905, 907, 1612, 1701, 2151, 2185, 2186, 2187, 2189, 2521, 2701, and 3804 (omitted),” 52 Pa.B. 2561 (4/30/2022).

Contents of Devised Real Estate Pass by Intestacy

A will which purported to distribute “my entire probate estate” but refers to only specific parcels or items of property was found to be ambiguous and the court looked to the circumstances of the decedent at the time the will was executed. However, the circumstances did not clearly show the intent of the testator with respect to the tangible personal property located at parcel of real property that were specifically devised, and so the tangible personal property passed by intestacy. Taylor Estate, 12 Fid.Rep.3d 138 (Venango O.C. 2021).

Claims of Son’s Expenses as Agent Not Allowed

The son of the decedent, who also served as a co-agent under a durable power of attorney, sought reimbursement for expenses incurred over the course of eleven years before the death of the decedent, but some of the claims were barred by the four year limitation under 42 Pa.C.S. § 5525(a)(8) for liabilities based upon a writing, and the son failed to satisfy his burden of showing that expenses were incurred as agent and not as the decedent’s son. Estate of Mary Linden Keefer, 12 Fid.Rep.3d 127 (Cumberland O.C. 2021).

Lack of Cognitive Decline Negated Undue Influence

In a dispute over a number of documents and transactions executed before the decedent’s death, the court found that the respondents had helped care for the decedent and had a close and confidential relationship with the decedent, and that their interests in his estate increased from about 40% of his estate and financial accounts to all of his estate and 64% of his accounts, which was a substantial benefit, but that neurological evidence showed that the decedent did not suffer from a weakened intellect, and so the disputed documents and transactions were not due to undue influence. Gandolfo Domenico Nicchi Estate, 12 Fid.Rep.3d 102 (Bucks O.C. 2021).

Decree Ordering Account Is Not Appealable

The Orphans’ Court agreed that it erred by ordering a party to file an account after dismissing preliminary objections and without allowing the party to file an answer to the petition, but concluded that the resulting decree was not an appealable order. Wengert Estate and Bierman Living Trust, 12 Fid.Rep. 99 (Lycoming O.C. 2021).

Co-Trustee Removed for Hostility and Maladministration

The COVID-19 emergency declarations of the Delaware County Court of Common Pleas did not preclude the court from removing a co-trustee of a trust, and the removal was proper because the co-trustee had evidenced hostility to the beneficiaries and the other co-trustee that jeopardized the administration of the trust and had taken steps that thwarted the proper administration of the trust and prevented beneficiaries from receiving their shares of the trust. Kelsey Trust, 12 Fid.Rep.3d 80 (Delaware O.C. 2020).