Executor and Trustee Surcharged for Dilatory Conduct

Accounts of estate and inter vivos trust (funded by estate) were filed together, and executor and trustee was denied commissions for failure to administer estate and trust in timely fashion, objections to miscellaneous expenses were sustained for failure to substantiate the expenses, and legal fees were reduced based on LaRocca factors, with the executor and trustee being surcharged for half of some of the fees due to the trustee’s dilatory conduct. Tobias Trust, 12 Fid.Rep.3d 251 (Montgomery O.C. 2020); Tobias Estate, 12 FId.Rep.3d 262 (Montgomery O.C. 2020).

[Note: These are the same adjudications for which the court wrote a R.A.P. 1915(a) opinion published at 12 Fid.Rep.3d 143 (Montgomery O.C. 2021), which was affirmed in part, reversed in part, vacated in part, and remanded by the Superior Court, 446 EDA 2021 and 2176 EDA 2020 (Pa. Super. 1/19/2022) (non-precedential).]

Removal of Trustee with History of Litigation with Former Co-Trustee

Following the removal of one co-trustee of a testamentary trust, the other co-trustee was also removed, and an independent trustee appointed, where the two trustees were also the primary beneficiaries of the trust, were currently litigating conflicting claims to trust property, and had a history of litigation and conflicts over the administration of the estate. Butz Estate, 12 FId.Rep.3d 247 (Monroe O.C. 2022)

Late Filing for Portability Extended to Five Years

The Internal Revenue Service has announced that the two-year period for filing an estate tax return merely to elect portability has been extended to five years from date of death. Rev. Proc. 2022-32, 2022-30 IRB 101 (7/25/2022).

In Rev. Proc. 2017-34, 2017-26 IRB 1282 (6/26/2017), the IRS first announced a new simplified procedure for obtaining relief for filing a late estate tax return in order to elect portability. (See “New Late Filing Portability Relief.”)

Under IRC section 2010(c)(5)(A), the federal estate tax exclusion amount for a surviving spouse can be increased by the “deceased spousal unused exclusion amount” of the deceased spouse, but only if the executor elects “portability” by filing an estate tax return for the deceased spouse within the time prescribed by law (including extensions) for filing the return.

The IRS does not have the power to extend the time to make an election with the due date is set by statute, but can extend deadlines when the due date is prescribed by regulation.  When the combined gross estate and adjusted taxable gifts exceeds the base exclusion amount, the due date for the return is prescribed by IRC § 6018(a) and so the IRS does not have the power to allow for a late filed election, but when no estate tax return is required by § 6018(a) and the return is being filed only to make the portability election, the due date is prescribed by Treas. Reg. § 20.2010-2(a) and the IRS can grant an extension of time under Treas. Reg. § 301.9100-3.

Rev. Proc. 2017-34 allowed a late portability election if (1) the estate tax return was not required due to the combined values of the gross estate and total adjusted taxable gifts and (2) the federal estate tax return is filed not later than two years after the decedent’s death or January 2, 2018, whichever is later.  This was intended to avoid the need for requests for letter rulings, but Rev. Proc. 2022-32 reports that the IRS has continued to issue “numerous” letter rulings allowing elections more than two years after the death of the decedent, and that the number of requests “continues to place a significant burden on the available resources of the IRS.” A “significant percentage” of the ruling requests have been from estates of decedents who died within five years of the request, and so the IRS has extended to time for late filing to five years after the decedent’s death.

The new revenue procedure supersedes Rev. Proc. 2017-34, and the requirements for filing a return in accordance with the procedure are found in Section 4.01 of the new Rev. Proc. 2022-32.

[DBE Comment: The federal estate tax basic exclusion amount is currently $12,060,000 (with adjustments for inflation), but will be reduced by one half after 2025. When the combined estates of the deceased spouse and the surviving spouse are likely to be less than the current exclusion amount, but likely to be more than the exclusion amount after 2025, it is not often clear if preparing a federal estate tax return will actually save any tax. The new five year period within which to file a return for a portability election may allow many estates to wait until after 2025, and to see if Congress allows the exclusion amount to be halved, before going to the time and expense of preparing and filing a federal estate tax return for the portability election.]

New Inheritance Tax Exemption for Military Deaths

Section 15.1 of the Act of July 8, 2022, No. 53 (HB 1342), adds a new subsection 2111(u) to the inheritance and Estate Tax Act (72. P.S. §9111(u)) that exempts from inheritance tax the transfer of personal property resulting from the death of a member of the armed forces or National Guard as a result of injury or illness while on active duty, which includes training. The exemption applies to deaths on or after September 7, 2022*.

[* The effective date provisions are a little confusing. Section 24(2.1) of the act says that the new subsection applies to deaths “after the effective date of this section,” but there is no explicit effective date for section 24. Section 26(2) of the act says that the addition of the new subsection “shall take effect in 60 days.” Sixty days after enactment would be September 6, and the word “after” in section 24(2.1) leads to the conclusion that the amendment applies to deaths after the 60th day, or beginning with deaths on September 7.]

Spousal Election is Irrevocable after Six Months

Absent fraud or duress, a spousal election against a will (or an election to take under the will) becomes irrevocable at the end of the six month period allowed by 20 Pa.C.S. § 2210(b) and may not be revoked merely because the surviving spouse had insufficient information about the estate. In re: Estate of Caleem L. Jabbour, Deceased, ___ Pa. ____, 276 A.3d 1180, 13 WAP 2021 (6/22/2022), rev’g 2020 PA Super 299, 244 A.3d 1254 (12/30/2020).

Distribution of House “As Part of” a Residuary Share Was Not “In Lieu of” That Share

A direction in a will that a beneficiary should have the right to receive the decedent’s residence as part of her one third share of the estate or purchase the house at fair market value did not give the beneficiary a share of the estate equal to the value of the house when her one third share of the estate would otherwise be less than the value of the house. Indelicato Estate, 12 Fid.Rep.3d 217 (Bucks O.C. 2022).

Agent’s Deposit into Joint Account Was a Breach of Fiduciary Duty

An agent’s deposit of a refund check payable to the principal into a bank account in the joint names of the principal and agent was an act of self-dealing and a breach of fiduciary duty by the agent because she commingled the funds of the principal with the funds of the agent, and so a surcharge on the agent was imposed. A receipt signed by a beneficiary for two rings of the decedent was upheld over the testimony of the beneficiary that she received only one ring. A tax penalty was directed to be paid by the estate and not imposed on one co-executor when there were delays and miscommunications between the one co-executor and the attorney for the estate. Other objections to the account of the executors and agent were was dismissed for failures of proof. Finnie Estate, 12 Fid.Rep.3d 203 (Montgomery O.C. 2022).

Right of First Refusal Exercisable

A right of first refusal granted to daughter and her husband by her father’s will was exercisable by daughter alone after her divorce from her husband when an offer to purchase the property was received by the executors more than 10 years after the death of the testator. Beck Estate, 12 Fid.Rep.3d 201 (Montgomery O.C. 2022).