Choice of Law for Administration of Trust

Posted on by May 17, 2024

The validity of the appointment of a successor trustee by the beneficiaries of the trust for a trust that was created by California settlors and provided for the interpretation of the trust in accordance with California law was to be determined under the laws of Illinois and not California when the beneficiaries had the power to change the situs of the trust, the beneficiaries had transferred the situs of the trust to Illinois, and the trust was then administered by a trustee in Illinois. The successor trustee who was appointed then administered the trust in Pennsylvania with the consent of the beneficiaries, and a California court ruled that it no longer had jurisdiction over the trust because the principal place of administration was in Pennsylvania, so the administration of the trust was then governed by Pennsylvania law and the attempt by the beneficiaries to remove the successor trustee was invalid under Pennsylvania law. In re: Dille Family Trust, 96 WDA 2022 and 97 WDA 2022 (Pa. Super. 9/19/2023) (non-precedential).

[For an earlier opinion for the same case, upholding sanctions against the beneficiaries for attempting to obtain the consent of a different California court for the distribution of the trust assets, see “Contempt Affirmed over Situs Dispute,” summarizing 853 WDA 2021 (Pa. Super. 9/11/2023) (non-precedential). A later opinion denied the beneficiaries the power to change the situs while the litigation was pending, “Situs of Trust Was Not Effectively Changed by Beneficiaries,” summarizing  26 WDA 2023 (Pa. Super. 5/16/2024) (non-precedential). Another later opinion involving this trust is “Denial of Expanded Intervention Was Abuse of Discretion,” summarizing 1326 WDA 2022 (Pa. Super. 5/16/2024) (non-precedential).]]

Contempt Affirmed over Situs Dispute

Posted on by May 17, 2024

The imposition of sanctions for contempt is an appealable order, and the Orphans’ Court did not abuse its discretion in holding the beneficiaries of a trust in contempt, and imposing the payment of the trustee’s legal fees as sanctions, when the court had enjoined all parties from transferring or distributing any trust assets and the beneficiaries had filed an action in California (where the trust was created and initially administered) seeking to terminate the trust and distribute all its assets. In re: Dille Family Trust, 853 WDA 2021 (Pa. Super. 9/11/2023) (non-precedential).

[The merits of the dispute over the situs of the trust was addressed in a later opinion, 96 WDA 2022 and 97 WDA 2022 (Pa. Super. 9/19/2023) (non-precedential), which was summarized in “Choice of Law for Administration of Trust.” A later opinion also denied the beneficiaries the power to change the situs while the litigation was pending, “Situs of Trust Was Not Effectively Changed by Beneficiaries,” summarizing  26 WDA 2023 (Pa. Super. 5/16/2024) (non-precedential). Another later opinion involving this trust is “Denial of Expanded Intervention Was Abuse of Discretion,” summarizing 1326 WDA 2022 (Pa. Super. 5/16/2024) (non-precedential).]

Proposed Rules for Service Members

Posted on by September 15, 2023

The various procedural rules committees have proposed a number of new and amended rules, including Orphans’ Court rules, to establish uniform procedures for the Servicemembers Civil Relief Act (”SCRA”), 50 U.S.C. §§ 3901 et seq., and the Military and Veterans Code (”Code”), 51 Pa.C.S. §§ 101 et seq. “Proposed Amendment of Pa.R.A.P. 1517, 1732, 1781, 3307, and 3309; Adoption of Pa.R.Civ.P. 243 and 1930.10, Rescission of Pa.R.Civ.P. 1920.46, and Amendment of Pa.R.Civ.P. 216, 237.1, 1037, 1303, 1901.6, 1910.11, 1910.12, 1915.4-2, 1915.4-3, 1915.17, 1920.42, 1920.51, 1930.6, 1956, and 2955; Adoption of Pa.R.O.C.P. 2.12, 3.16, and 15.23, and Amendment of Pa.R.O.C.P. 14.1, 15.7, 15.8, 15.9, 15.10, and 15.13; Amendment of Pa.R.Crim.P. 150, 430, 431, and 515; Adoption of Pa.R.J.C.P. 1206, and Amendment of Pa.R.J.C.P. 1122, 1242, and 1406; and Amendment of Pa.R.Civ.P.M.D.J. 209, 304, 308, 403, 405, 410, 503, 506, 515, and 516,” 53 Pa.B. 5709 (9/16/2023).

Unofficial Inflation Adjustments for 2024

Posted on by September 11, 2024

With the release of the Chained Consumer Price Index (C-CPI-U) for August 2023, it’s possible to calculate various inflation adjustments for 2024. The following are the significant federal estate planning numbers, with the numbers for 2023 shown in parentheses:

  • The federal estate tax base applicable exclusion amount (and generation-skipping tax exemption) will be $13,610,000 (was $12,920,000 for 2023).
  • The annual gift tax exclusion will be $18,000 (was $17,000).
  • The annual gift tax exclusion for a non-citizen spouse will be $185,000 (was $175,000).
  • The “2 percent” amount for purposes of section 6166 will be $1,850,000 (was $1,750,000).
  • The limitation on the special use valuation reduction under section 2032A will be $1,380,0001 (was $1,310,000).
  • The top (37%) income tax bracket for estates and trusts will begin at $15,200 (was $14,450), and the maximum rate on capital gains will begin at $15,450 (was $14,650).
  • The alternative minimum tax exemption for estates and trusts will be $29,900 (was $28,400), and the phaseout of the exemption will start at $99,6502 (was $94,600).

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

Updates (9/11/2024), per Rev. Proc. 2023-34, 2023-48 IRB ___ (11/24/2023):

  1. Official result was $1,390,000.
  2. Official result was $99,700.

Appeal of Reconsideration Quashed

Posted on by January 21, 2024

An appeal from an order of the Orphans’ Court granting in part and denying in part a motion for reconsideration was quashed even though the issues for which reconsideration was denied were appealable because the motion for reconsideration did not extend the time limit for appeal, while the grant of reconsideration is not appealable because it is not a final order with respect to the issues addressed by that order. In re: Estate of Erich A. Hooper, 1183 MDA 2022 (Pa. Super. 9/8/2023) (non-precedential).

The opinions that were the subjects of the above appeal were published as Hooper Estate (No. 1), 1 Fid.Rep.4th 208 (Susquehanna O.C. 2022), and Hooper Estate (No. 2), 1 Fid.Rep.4th 216 (Susquehanna O.C. 2022). See “Distribution of Royalties under Will after Disclaimer and with Ineffective Residuary Clause.“

Trustee Removed and Trust Modified Due to Unanticipated Circumstances

Posted on by September 4, 2023

The Orphans’ Court properly removed the appellant as a trustee under 20 Pa.C.S. § 7766(b)(3) because he never took any steps to protect or administer the property that was transferred to the trust, and did not pay the mortgage for the property or pay the rent, real estate taxes, or insurance for the business he operated on the property. However, the court did not determine whether a suitable successor trustee was available, and so the removal order was vacated and remanded for consideration of that issue. The modification of the trust under 20 Pa.C.S. § 7740.2(a) was affirmed because the settlors could not have anticipated that the trust property would not generate income or be self-sustaining, and so modification was proper to permit the sale of the property and the reimbursement to the surviving settlor for the mortgage, insurance, property taxes, and other costs paid to preserve the trust property. Martin v. Paul, 944 MDA 2021 (Pa. Super. 8/29/2023) (non-precedential).

Rebutting Presumption of Revocation of Lost Will

Posted on by September 4, 2023

The Orphans’ Court had jurisdiction to consider the probate of a lost will after letters of administration had been issued to the decedent’s daughter, and even though the Register of Wills had never acted on a petition to probate the will and revoke the letters previously granted. Proof of the execution and contents of the will was not challenged on appeal, and the presumption of revocation by the testator was effectively rebutted by testimony that the decedent had continued to declare that he was disinheriting his daughter, and that the will could have been destroyed in the same gas explosion that killed the decedent and destroyed his home, presumably destroying the will as well. In re: Estate of Russell R. Felix, 1184 WDA 2022 (Pa. Super. 8/28/2023) (non-precedential).

Appeal of Partnership Buy-Sell Agreement

Posted on by September 22, 2024

The PA Supreme Court has allowed an appeal on the following issue (as stated by the petitioner):

“Where a non-party to a partnership agreement is not a signatory to the agreement and is not a third-party beneficiary of it and where a partnership agreement does not permit assignment, whether the Court’s review is necessary to clarify the circumstances where a non-party could be permitted to ‘step into the shoes’ of a party to an agreement and to enforce contractual rights as if that individual were a party to the agreement.”

In re: Estate of Peter J. Caruso, III, 43 WAL 2023 (8/21/2023).

The Superior Court had allowed specific performance of a buy-sell provision in a partnership agreement even though 12 years had elapsed from the death of one of the two partners, because the conduct of the surviving partner and the deceased partner’s widow showed that they intended to continue to operate the partnership under the partnership agreement. In re: Estate of Peter J. Caruso, III, 1406 WDA 2021 (Pa. Super. 11/15/2022) (non-precedential).

Although the case does not involve issues of estate administration, the resolution of the case may be of interest to practitioners who prepare family partnership agreements and buy-sell agreements as part of their estate planning services.

[9/22/2024 Update: The Supreme Court reversed the Superior Court. See “Surviving Spouse Was Not a Partner under Partnership Agreement.”]

Trust Created by Agent under Invalid Power of Attorney is Void

Posted on by August 24, 2023

The Supreme Court has reversed the Superior Court and ruled that when a trust is created by an agent acting under a power of attorney that is void ab initio, the trust is also void. In re: Joseph L. Koepfinger, ___ Pa. ___, ___ A.3d ___, 20 WAP 2022 (8/22/2023), rev’g 123 WDA 2020 (Pa. Super. 2/4/2021) (non-precedential).

[DBE Comments: In my report of the allowance of the appeal by the Supreme Court, I noted that the Superior Court’s opinion was “largely incoherent.” In its opinion, the Supreme Court stated that “Respectfully, it is not entirely clear what the Superior Court ultimately held, as it did not directly address the issue at the heart of this matter, i.e., whether the judicial determination that the POA was void ab initio rendered the trust invalid.”]