Appeal for Denial of Trust Modification

Posted on by January 27, 2023

The Pa. Supreme Court is allowing an appeal from a decision of the Superior Court on the following issue (as stated by the petitioner):

Did the Superior Court err by not enforcing modifications to trusts under 20 Pa. C.S.A. §7740.1(a), which were agreed to by both the settlor and all beneficiaries to allow for the replacement of trustees by a majority of beneficiaries after the death of the settlor?

Trust under Deed of Walter R. Garrison, 587 MAL 2021, 588 MAL 2021, 589 MAL 2021 (5/18/2022).

The Superior Court had affirmed a decision of the Orphans’ Court holding that a trust modification that allowed the beneficiaries to remove and replace trustees was ineffective even with the consent of the settlor. Garrison Trusts, 10 Fid.Rep.3d 189 (Montgomery O.C. 2020), aff’d 1429 EDA 2020 (Pa. Super. 9/27/2021) (non-precedential).

[DBE Comment: As previously noted, the decisions made no sense, because even a material purpose of a trust can be modified, or an otherwise irrevocable trust can be terminated, with the consent of the settlor and all beneficiaries. Both courts thought that they were following the Supreme Court’s decision in Trust under Agreement of Edward Winslow Taylor, 640 Pa. 629, 164 A.3d 1147 (2017), and a Uniform Law Comment to what was enacted as 20 Pa.C.S. § 7740.1, but the issue in Taylor was an attempted modification by the beneficiaries under subsection (b) and not a modification with the consent of the settlor under subsection (a), and the UTC comment addresses subsection (b) and not subsection (a).]

[1/27/2023 Update: The Supreme Court reversed the Superior Court. In re: Trust under Deed of Walter R. Garrison, ___ Pa. ___, ___ A.3d ___, 61 MAP 2022, 62 MAP 2022, and 63 MAP 2022 (1/19/2023).]

Appeal on Validity of Power of Attorney and Trust

Posted on by August 24, 2023

[Update (8/24/2023): The Supreme Court has reversed the Superior Court and reinstated the judgment of the Orphans’ Court.]

The Pa. Supreme Court is allowing an appeal from a decision of the Superior Court on the following issue (as stated by the petitioner):

What is the effect of a Power of Attorney which is not executed in conformance with the statute and did the Superior Court commit reversible error by reversing the trial court which held that a trust was void and terminated as it was created by a Power of Attorney which was later declared void ab initio?

In re: Joseph L. Koepfinger, an Individual, 162 WAL 2012 (5/12/2022).

The opinion of the Superior Court can be found at 123 WDA 2020 (2/4/2021) (non-precedential). According to that opinion, the power of attorney that was used to create the trust was signed in 2016 but was not notarized, as then required by § 5601(b)(3)(i)). In a declaratory judgment action by the principal, the lower court had held that the power of attorney was therefore void, and the trust was therefore void, relying on Vine v. Commonwealth of Pennsylvania, State Employees’ Retirement Board, 607 Pa. 625, 9 A.3d 1150 (Pa.Super. 2010). The Superior Court reversed (or perhaps vacated) the lower court order because the Vine decision was reversed when the legislature amended 20 Pa.C.S. § 5608, which protects people who rely on a power of attorney in good faith.

[DBE Comments (replacing initial comments): The Superior Court’s opinion is largely incoherent. The court says that reliance on Vine was error, but also says that § 5608 was not applicable to the validity of the trust. The court therefore seemed to recognize that the validity of the trust and the liability of the agent/trustee were two separate issues, and yet treated the legislative reversal of Vine as a reversal on both issues, rather than on just the issue of liability. It also isn’t clear whether the court vacated the trial court’s order (which would allow the trial court to reconsider the issue) or reversed the order (and so held the trust to be valid). (The word “vacate” is on page 5 of the opinion, but the opinion concludes with “reversed,” with a footnote declaring that the trust might still be terminated due to fraud or mistake, implying that the trust is otherwise valid.) More puzzling still, the court observed that “neither the [trial] court nor [the principal] points to anything in the law in force at the relevant time that would automatically render an irrevocable trust created pursuant to a POA void ab intitio because the POA is ultimate found to have been improperly executed.” This suggests that the actions of an agent under an improperly executed power of attorney might nevertheless be valid, and the Superior Court apparently decided that issue by ruling against the principal without remanding to allow the trial court to address it.]

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).