Settlor Lacked Standing in Litigation over Trusts

Posted on by March 26, 2024

The settlor of an irrevocable trust, who retained no interests in the trust, did not have standing to participate in proceedings regarding the account filed by, and possible removal of, the trustee, and the decision upholding preliminary objections to dismiss the settlor’s pleadings was not a final or appealable order. Middleton Trust, 12 Fid.Rep.3d 478 (Montgomery O.C. 2022), appeal quashed, 2024 PA Super 54 (3/25/2024). The settlor also did not have standing in an action brought by a beneficiary to challenge the appointment of a trustee or a change in situs of another trust for the same beneficiary, and the dismissal of the settlor’s answer and new matter was not an appealable order. Middleton Trust, 12 Fid.Rep.3d 543 (Montgomery O.C. 2022), appeal quashed, 2449 EDA 2022 (Pa. Super. 3/21/2024) (non-precedential).

[Note: The two opinions are similar, dealing with similar issues but different actions involving different trusts with the same settlor and the same beneficiary. The original version of this summary and this note did recognize those differences.]

Lapse of Interests of Beneficiaries Receiving “Need-Based Benefits”

Posted on by December 4, 2022

Provision of will directing that the shares of beneficiaries receiving governmental “need-based benefits” shall instead be paid to any existing “special needs trust” for the beneficiary or, if there is no trust, the share shall lapse and be distributed as part of the residuary estate, was applied to two of four beneficiaries of a residuary trust, so that the trust income would be distributed to only the other two beneficiaries. Manno Estate, 12 Fid.Rep.3d 489 (Lycoming O.C. 2022)

Agreed Division of Retirement Funds Enforced and Sanctions Imposed

Orphans’ Court had jurisdiction to clarify its own order despite lapse of time, and had jurisdiction over retirement funds which had been liquidated, and so its order enforcing settlement of estate and distribution of retirement funds was affirmed, along with sanctions against appellant, and additional sanctions imposed on appeal for “obdurate, dilatory and vexatious conduct.” In re: Estate of Coleen Tomcik, 2022 PA Super 192, ___ A.3d ___ (11/15/2022).

Divorce Negated Gifts to Step-Grandchildren

Posted on by June 26, 2023

Testamentary gifts to step-grandchildren that were conditioned upon their grandmother (the decedent’s wife) not electing against the will and not recovering assets “in our divorce after my death” were ineffective by reason of a final decree of divorce (and equitable division of marital assets) even though the decree was entered before death and even though the scrivener of the will testified that the testator was concerned about equitable division after his death and not before. Cassidy Estate, 12 Fid.Rep.3d 423 (Bucks O.C. 2022), rev’d, d, 2023 PA Super 101, ___ A.3d. ___ (6/9/2023).

[Revised on 6/26/2023 to correct error in summary of holding.]

Filing of Inheritance Tax Return Is Mandatory for Small Estate Petition

Small estate petition dismissed for failure to include a statement that the Pennsylvania inheritance tax return had been filed and the tax paid and failure to include a copy of a notice of appraisement, as required by Pa.R.O.C.P. 5.50(b)(5) and (c)(3), the provisions of which are mandatory and cannot be waived by the court. Eddinger Estate, 12 Fid.Rep.3d 419, 114 Berks 410 (Berks O.C. 2022).

Option to Purchase Requires Filing of Federal Estate Tax Return

Because the decedent’s will granted an option to purchase real estate at “the value as finally determined for Federal Estate Tax purposes,” the court ordered the executor to file a federal estate tax return even though the estate was too small to require one and even though the filling of the return will not resolve the dispute because the executors may claim special use valuation under I.R.C. section 2032A and some of the beneficiaries may refuse to join in the required agreement to pay the additional estate tax that might become due if the property ceases to be used for a “qualified use.” Finck Estate, 12 Fid.Rep.3d 381 (Lycoming O.C. 2022)

Official Inflation Adjustments for 2023

Posted on by October 18, 2022

The Internal Revenue Service has released Rev. Proc. 2022-38 with inflation adjustments for 2023 and, consistent with earlier predictions, the changes in the most significant federal estate and trust planning numbers will be as follows:

  • The federal estate tax base applicable exclusion amount (and generation-skipping tax exemption) will be $12,920,000 (was $12,060,000 for 2022).
  • The annual gift tax exclusion will be $17,000 (was $16,000).
  • The annual gift tax exclusion for a non-citizen spouse will be $175,000 (was $164,000).
  • The “2 percent” amount for purposes of section 6166 will be $1,750,000 (was $1,640,000).
  • The limitation on the special use valuation reduction under section 2032A will be $1,310,000 (was $1,230,000).
  • The top (37%) income tax bracket for estates and trusts will begin at $14,450 (was $13,450).
  • The alternative minimum tax exemption for estates and trusts will be $28,400 (was $26,500), and the phaseout of the exemption will start at $94,600 (was $88,300).