RMD Final Regulations

Posted on by July 21, 2024

The Internal Revenue Service has published final regulations to address some of the changes to the required minimum distribution rules under the amendments to section 401(a)(9) made by sections 114 and 401 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). “Required Minimum Distributions,” TD 10001, 89 F.R. 58886 (7/19/2024).

These final regulations do not address some of the changes made by the SECURE 2.0 Act of 2022 (Division T of the Consolidated Appropriations Act, 2023, Public Law 117–328, 136 Stat. 4459
(12/29/2022)), and so new proposed regulations have been published. “Required Minimum Distributions+,” REG-103529-23, 89 F.R. 58644 (7/19/2024).

One significant issue that is resolved by the new final regulations is whether required minimum distributions to an “eligible designated beneficiary,” which must be completed within 10 years, can be deferred for 10 years (like distributions subject to the 5 year limit can be deferred). It was originally thought that no distributions were required during the 10 year period, but under the final regulations the eligible designated beneficiary of an employee who had reached the required beginning date must continue to receive distributions based on the age of the deceased employee, and then receive the balance of the account at the end of the 10 years. (See “IRS Publication 590-B To Be Corrected” for some of the history of the confusion on this issue.)

The SECURE Act changes to section 401(a)(9) were summarized as “New (and Old) Minimum Required Distribution Rules Summarized” (1/28/2020), which will be updated as required by the new final and proposed regulations.

Extrinsic Evidence Allowed to Resolve Ambiguity in Address of Property Devised

Posted on by July 18, 2024

It was reversible error for the Orphans’ Court to fail to consider extrinsic evidence to resolve a latent ambiguity in a will. The decedent had owned five parcels of real property, and had specifically devised one parcel to five of his seven children, but the residuary beneficiary had claimed that a gift of “293-241 Farragut Terrace” did not include the entire property that the decedent had owned and known as 293-243 Farragut Terrace (now known as Farragut Street) , so the property should be subdivided to create a property to be known as 243 Farragut Street to pass as part of the residue of the estate. The Orphans’ Court failed to consider the scheme of the will and the “natural intention of the testator,” because the evidence showed that there was no property with the address “239-241 Farragut Street” separate from any property known as “243 Farragut Street,” and the “239-241” in the will was “plainly the scrivener’s error.” The beneficiary was therefore entitled to sell the entire property consistent with 20 Pa.C.S. § 301(b), and the purchaser was entitled to specific performance of the agreement of sale. Estate of Walter Edmonds, Deceased, 204 PA Super 147, ___ A.3d ___ (7/16/2024).

Appointment of Guardians of the Person Affirmed over Objections of Estranged Daughter

Posted on by July 18, 2024

It was not an abuse of discretion for the Orphans’ Court to appoint two of the three children of the alleged incapacitated person (AIP) as plenary guardians of her person over the objections of an estranged daughter when the AIP had been living with one of the two guardians, the AIP testified that she wished to remain in that guardian’s home, and there was testimony that the AIP was being well cared for. It was not an abuse of discretion for the hearing judge to deny a motion for recusal based on the judge’s previously hearing a divorce action involving the objecting daughter when the objecting daughter failed to identify what information the judge received in that case that might be relevant to the appointment of guardians. That the guardians of the persons might have financial conflicts of interests was not relevant because an independent guardian of the estate had been appointed. The findings of fact by the hearing judge were timely because one of the initial orders made the findings of fact required by 20 Pa.C.S. § 5512.1(a), and the objecting daughter was not prejudiced by the entry of additional findings of fact after the appeal was filed. Finally, it was not an abuse of discretion for the court to dismiss without prejudice claims of undue influence when the objecting daughter failed to appear at the scheduling hearing. In re: C.A.J., an Alleged Incapacitated Person, 2024 PA Super 141, ___ A.3d ___ (7/9/2024).

Agent Had Power to Liquidate C.D.s with Beneficiary Designations

Posted on by July 18, 2024

The power of an agent to engage in “banking and financial transactions” gave the agent the power to liquidate certificates of deposit created by the decedent (referred to as “Totten trusts”). The beneficiary named on the C.D.s raised other issues in support of her claim against the estate for the proceeds of the C.D.s, but the claims were all considered to be waived for failure to properly develop her arguments, or were found to be harmless errors by the Orphans’ Court. In re: Estate of Willard Charles Gritser, Deceased, 741 WDA 2023 (Pa. Super. 5/7/2024) (non-precedential).

New Rules for Unclaimed Property

Posted on by July 17, 2024

S.B. 115 has been passed by both houses of the Pennsylvania legislature and was signed by the governor on July 17, 2024, becoming Act 65 of 2024, P.L. ___, to be effective in 60 days.

The bill amends 20 Pa.C.S. § 3101(e) (one of the provisions for dispositions for which letters are not required) to enlarge the category of persons who may claim unclaimed property deposited with the Pennsylvania Treasurer. Previously, claimants could be a spouse, child, mother or father, or sister or brother of the decedent. As amended, § 3101(e) allows claims by a spouse, issue, parents, brother or sister (or issue of a brother or sister), or grandparent of the decedent, with preference given in that order. So grandchildren (and their issue), nephews and nieces (and their issue), and grandparents are now included among the permissible claimants.

A new requirement for making the claim is that the sworn affidavit that is required must state that the claimant is among the persons with the strongest claim to the property.

New Directed Trust Act

Posted on by August 21, 2024

S.B. 1231 has been passed by both houses of the Pennsylvania legislature and was signed by the governor on July 15, 2024, becoming Act 64 of 2024, P.L. ___, to be effective in 90 days. The bill adopted changes to…

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No Transfer Tax on Distribution of Real Estate Company by Living Trust

Posted on by July 8, 2024

Because real estate transfer tax exemptions or exclusions that apply to transfers of real property also apply to acquisitions of interests in real estate companies, a distribution of an interest in a limited liability partnership by an living trust to a new trust as beneficiary after the death of the settlor of the living trust was not subject to realty transfer tax. 430 Stump Road, LLP, v. Com., 502 F.R. 2022 (Pa. Cmwlth. 7/3/2024).

Inheritance Forfeiture for Elder Abuse

Posted on by July 1, 2024

Both houses of the Pennsylvania legislature have passed H.B. 1760, which was signed by the governor on July 1, 2024, becoming Act 40 of 2024.

Act 40 amends 20 Pa.C.S. Ch. 88 (which was titled “Slayers” and is retitled “Slayers and Elder Abusers”), as well as several other sections of Title 20, to deny persons convicted of elder abuse the right to any inheritance or other interest passing from the person abused upon his or her death. H.B. 1760 does this by amending the parts of Title 20 dealing with slayers so that they apply to persons convicted of elder abuse.

“Elder abuse” is defined as crimes committed under certain chapters of Title 18 when the victim is 60 years of age or older.

The changes made by H.B. 1760 will take effect 180 days after enactment, which presumably means that it will apply to deaths occurring on or after 180 days after enactment.

Constitutionality of Grantor Trusts

Posted on by June 24, 2024

In Moore v. United States, 602 U.S. ___, No. 22-800 (6/20/2024), the U.S. Supreme Court upheld the constitutionality of the “mandatory repatriation tax” (MRT), which was enacted as part of the Tax Cuts and Jobs Act in 2017 and required American taxpayers to pay a tax on income that had been accumulated in foreign corporations of which the taxpayer is a shareholder. In reaching that conclusion, the majority opinion (authored by Justice Kavanaugh and joined by four other justices) relied on the long-standing acceptance of Congressional power to tax shareholders and partners on the income of the businesses that they own.

Neither the majority opinion nor the concurring and dissenting opinions mentioned the provisions of the Internal Revenue Code that tax the grantors of certain kinds of trusts on the income of those “grantor trusts.” (See “Overview: Benefits/Costs of Grantor Trusts” and “Intentional Grantor Trusts is Pennsylvania” for additional information on grantor trusts.) But a limit of the ability of Congress to tax owners of business entities is mentioned. In footnote 4 of the majority opinion, it is noted that there may be limits on the attribution of income under the due process clause of the Fifth Amendment, such as “limits based on the taxpayer’s relationship to the income.” Viewed by that standard, the grantor trust rules are almost certainly constitutional because grantors are taxed only on the income earned by trusts that are revocable or over which the grantor has retained powers giving the grantor some level of control over the income of the trust or the investments of the trust.

Similar constitutional issues might apply to the so-called “kiddie tax” imposed by IRC section 1(g), which requires that the unearned income of a minor child to be taxed at the marginal tax rates of the parents. The constitutionality of that tax has been upheld by several district courts, even though the Supreme Court had previously held that it was an unconstitutional violation of due process for a state to impose tax rates on a married person based in part on the income of his her spouse, stating that “because of the fundamental conceptions which underlie our system, any attempt by a state to measure the tax on one person’s property or income by reference to the property or income of another is contrary to due process of law as guaranteed by the Fourteenth Amendment.” Hoeper v. Tax Commission of Wisconsin, 284 U.S. 206, 215 (1931).

In Moore, the majority opinion specifically expresses no opinion on whether Congress could require shareholders to pay an income tax on the undistributed income of widely held or domestic corporations, or whether Congress could impose a tax on unrealized capital gains or a tax on wealth generally, so those issues remain for another day.