Consistent Basis Reporting Required

Posted on by August 4, 2015

Consistent tax basis reporting by the executor of an estate on the federal estate tax return and the beneficiaries of the estate on their individual income tax returns will be required under section 2004 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, H.R. 3236, which has apparently passed both the House and the Senate.  [Updated:  The bill was signed into law by the President on 7/31, becoming P.L. 114-41..]

Previously, the values reported on the federal estate tax return were “deemed” to be the fair market values of the property passing from the decedent for the purpose of determining the income tax basis for the property under IRC section 1014 (see Treas. Reg. 1.1014-3(a)), but it was not an absolute requirement that the same values be used for federal estate tax and income tax purposes, and there were no specific reporting requirements or specific penalties for applying inconsistent values.  H.R. 3236 adds a new subsection 1014(f) which states that the basis of property acquired from a decedent cannot exceed the value finally determined for estate tax purposes, a new section 6035 requiring basis reporting by persons required to file estate tax returns, and adds inconsistent basis reporting to the list of actions for which a 20 percent accuracy-related penalty is imposed under IRC section 6662.

These new provisions apply to property for which an estate tax return is filed after the date of enactment.  [Update: Because the bill was signed into law on 7/31/2015, the new rules and reporting requirements apply to returns filed on or after 8/1/2015.  Watch this website for suggestions on how to comply with the new reporting requirements.]

Custody of Exhibits in Northampton County Orphans’ Court

Northampton County has published a new administrative order governing the custody of exhibits in its courts, including the Orphans’ Court.  The order provides for the confidentiality of exhibits in juvenile delinquency and dependency cases, and matters involving adoption, guardianship, minors, and incompetency, but confirms that estate and tax filings remain open to public inspection and copying.  Northampton County Administrative Order 2015-5, C5 Custody of Exhibits, C-48CV2015-004903 (6/3/2015), 45 Pa.B. 3826 (7/18/2015).

Attorney General Offices and Notices

Posted on by February 24, 2025

There are several circumstances under which notice must be given to the Attorney General of Pennsylvania:

  • When a will has been probated that includes gifts to charities of more than $25,000, or which will not be be paid in full, notice must be given to the AG in accordance with Pa.O.C. Rule 10.5(a)(6).
  • When a will has been probated that includes gifts to any governmental beneficiary, notice must be given to the AG in accordance with Pa.O.C. Rule 10.5(a)(7).
  • If there are no other intestate heirs, then the Commonwealth is a statutory heir under 20 Pa.C.S. 2103(6), and the AG would then need to receive notice in accordance with Pa.O.C. Rule 10.5(a)(7). (The instructions to REV-1513–Schedule J of the inheritance tax return–say that “Commonwealth of PA, Statutory Heir” should be listed in Section II, Part B, “Charitable and Governmental Distributions.”)
  • In any Orphans’ Court proceeding involving or affecting a charitable interest (other than a pecuniary gift of $25,000 or less that has been or will be paid in full), at least twenty days advance written notice must be given to the AG in accordance with Pa.O.C. Rule 4.4.  Also, Pa.O.C. Rule 2.5(c) requires that notice of the filing of an account be given to the AG if proposed distributions are to an estate or trust of which a charity is a “qualified beneficiary.”
  • Under 20 Pa.C.S. § 7710(d), the Office of Attorney General has the rights of a charitable organization named in trust instrument, including the right of notice of any proceeding or nonjudicial settlement agreement, which should include any notice that may be required to the charitable beneficiaries of a trust under 20 Pa.C.S. § 7780.3 if the settlor died or was adjudicated incapacitated.  See also, 20 Pa.C.S. § 7735(c) (enforcement of charitable purposes).
  • There are sections of the PEF Code (Title 20 of the Pa. Consolidated Statutes) requiring notice or consent of the AG under specific circumstances, such as § 7203 (charitable trusts having voting control of certain publicly traded business corporations), § 7740.3(d) and (e) (termination of small charitable trusts), § 7764(d) (filling vacancy in trusteeship of charitable trust), and § 7799.3(d) (annual report of pooled trusts for individuals with disabilities).

The main office of the Attorney General is 14th Floor, Strawberry Square, Harrisburg, PA 17120.  However, the Charitable Trusts and Organizations Section has three regional offices, and it is better practice to send notices relating to charitable interests to those regional offices. The Philadelphia Estate Practitioner’s Handbook suggests that the Philadelphia practice is to send the notice relating to governmental interests to the same regional offices that receive notices of charitable interests, and it seems appropriate that the same officers representing the interests of charities in estates and trusts should also represent the interests of the Commonwealth in estates, but there is no specific authority for that conclusion.

The addresses of the regional offices are as follows:

Office AddressCounties Served
Central Regional Office
Strawberry Square, 14th Floor
Harrisburg, PA 17120
Tel: 717-783-2853
Fax: 717-787-1190		Adams, Bedford, Blair, Bradford, Centre, Clinton, Columbia, Cumberland, Dauphin, Franklin, Fulton, Huntingdon, Juniata, Lackawanna, Lancaster, Lebanon, Luzerne, Lycoming, Mifflin, Montour, Northumberland, Perry, Potter, Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Wyoming, and York
Eastern Regional Office
1600 Arch Street, Suite 300
Philadelphia, PA 19103
Tel: 215-560-2402
Fax: 215-560-2494		Berks, Bucks, Carbon, Chester, Delaware, Lehigh, Monroe, Montgomery, Northampton, Philadelphia, Pike, and Wayne
Western Regional Office
1251 Waterfront Place, Mezz. Level
Pittsburgh, PA 15222
Tel: 412-565-7680
Fax: 412-565-3181		Allegheny, Armstrong, Beaver, Butler, Cambria, Cameron, Clarion, Clearfield, Crawford, Elk, Erie, Fayette, Forest, Greene, Indiana, Jefferson, Lawrence, McKean, Mercer, Somerset, Venango, Warren, Washington, and Westmoreland

[Updated on 3/10/2017 to conform citations to the Pa. O.C. Rules that became effective 9/1/2016.  Updated on 11/4/2019 due to changes in URLs for Pa.O.C. Rules.  Updated on 9/23/2020 to revise addresses for Eastern and Western offices.]

Right of Occupancy Granted, Forced Sale by Executor Denied

A right of occupancy (which is different from a life estate) granted by the decedent’s will was not invalid or void against public policy merely because the decedent had no certificate of occupancy and the structure appeared to be in violation of building codes, and so the petition of the executor to sell the property was denied.  Miller Estate, 5 Fid. Rep. 3d 231 (OC Chest. 2015) (Opinion by Tunnell, J.)

Is the Recognition of Same-Sex Marriages Retroactive?

Posted on by July 1, 2015

In Obergefell v. Hodges, ___ U.S. ___, No 14-556 (6/26/15), the United States Supreme Court held that it was a violation of the due process and equal protection clauses of the 14th Amendment for states to deny marriages licenses to same-sex couples, or to refuse to recognize same-sex marriages lawfully entered into in other states.   This decision was a natural progression from the decision in United States v. Windsor, 570 U.S. ___, 133 S.Ct. 2675, No. 12-307 (2013), which held that it was a violation of the 5th Amendment for the federal government to refuse to recognize same-sex marriages that were lawfully entered into under state law.

The Obergefell decision will not have much impact in Pennsylvania because Pennsylvania was already recognizing same-sex marriages in accordance with the federal district court decision in Whitewood v. Wolf, 992 F. Supp. 2d 410 (M.D. Pa. 2014), but Obergefell affirms the conclusion of the district court, eliminating any possibility of any disputes about the validity or effect of the Whitewood decision.

And there are still some questions about the possible retroactive application of the Whitewood and Obergefell decisions.  Generally speaking, constitutional decisions are given retroactive effect according to the principle (or perhaps the fiction) that the Constitution hasn’t really changed and what the Constitution requires now is what the Constitution has always required.  However, there are practical limits, so that (for example) the Internal Revenue Service has stated that same-sex couples could file amended tax returns as married filing jointly only for those years for which the statute of limitations for refunds had not run.  (See IRS Notice 2014-19.)

I had previously commented that it was possible that Pennsylvania might have to recognize a same-sex common law marriage if the couple exchanged wedding vows before 2005, and the holding in Obergefell may make that even more likely.  If two couples appear in court, each claiming the existence of a common law marriage entered into before 2005, and the only difference between the two couples is that one is a same-sex couple and one is an opposite-sex couple, it would seem to be a violation of equal protection to recognize the opposite-sex marriage but not the same-sex marriage.

The other situation in which Obergefell and Whitewood would have some retroactive effect would be for couples that were married in other states and purchased property in Pennsylvania in joint names.  The presumption in Pennsylvania is that, when property is purchased by a married couple in their joint names, title is taken as tenants by the entireties, and not as tenants in common.  (An important difference between the two forms of ownership is that tenants in common are considered to each own an undivided one half interest in the property, so a creditor of once spouse can attach that spouse’s half of the property, but entireties property cannot be attached by a creditor of one spouse, because the property is considered to be owned by the marital unit.)  If two unmarried people buy property and then later marry, the property is not converted to entireties property because the buyers have to be married at the time of the purchase.  But if a same-sex couple was married in New York or Massachusetts, and they move to Pennsylvania and buy property in Pennsylvania, the property should be considered to be entireties property because they were already married at the time the property was purchased, even if Pennsylvania did not recognize the marriage at the time the property was purchased.

If I were counseling a same-sex couple, I would recommend that they not depend on retroactive applications of rulings, but that they get a marriage license and confirm their marriage with a new ceremony even if they exchanged vows before 2005, or that they re-title their property as tenancy by the entireties even if they were married under the laws of another state at the time they purchased the property.  But sometimes those things aren’t possible (such as a death having already occurred), or aren’t considered while they are possible, so we’ll probably see these issues in the future.

Surrogacy Contract and Enforceability

Husband and wife contracted with surrogate mother to deliver the baby from  husband’s sperm and a donor’s egg. During the pregnancy, husband and wife separated. The surrogate mother petitioned the court to declare husband and wife as parents of Baby S. The court declared husband and wife (wife was the adverse party) as the legal parents of Baby S, and held that all fees and costs obligated under the contract enforceable against wife, holding that the contract did not violate public policy.  In re: Baby S, 5 Fid. Rep. 3d 221 (O.C. Montg. 2015) (Opinion by Ott, J.), aff’d, 2015 PA Super 244, No. 1259 EDA 2015 (11/23/2015).

Interpretation of Shareholders Agreement for Valuation of Company in Account

Executor filed an account valuing two closely held companies by its market value, which means a willing seller to a willing buyer; objectors, two of four residuary beneficiaries, claimed that the shareholder agreement specified a pro rata valuation, meaning dividing the companies’ values by the amount of shares; and the court held that the shareholders agreement was ambiguous, allowing parole evidence, and confirmed the account, because the evidence indicated that the “market value” specified in the shareholders agreement incorporated market variables, such as marketability and controlling interest.  Bittner Estate, 5 Fid. Rep. 3d 242 (OC Bedford 2014) (Opinion by Livengood, J.), aff’d No. 1847 WDA 2014 (Pa. Super. 1/29/2016).

Cy Pres Not Applied to Hospital Reorganization

When a hospital becomes part of a larger health care organization, but continues to operate as separate organization at the same location serving the same community, the cy pres doctrine should not be applied to require a pour-over trust and special accounting measures to prevent charitable trust income from indirectly benefiting the health care organization, but it was proper to order that the hospital’s articles of incorporation be amended to require that donor restricted funds be used solely for the operation of the hospital. In re: Grover C. Shoemaker Trust, 115 A.3d 347, 2015 PA Super 111, No. (5/7/2015).