Settlement did not create a “common fund” that would justify the payment of legal fees from the estate when one residuary beneficiary made a payment to the other three residuary beneficiaries, and no other beneficiaries were unjustly enriched by the efforts of the counsel for the three beneficiaries. Estate of Anita M. Moon, Deceased, 8 Fid.Rep.3d 292 (Bucks O.C. 2018), aff’d, 1801 EDA 2018 (Pa. Super. 2/15/2019) (non-precedential).
Daughter who had served as father’s agent under power of attorney, and who was nominated to serve as his guardian by that instrument, was not appointed by the court to serve as guardian after father was determined to be incapacitated, and a neutral party was appointed instead, primarily because daughter had expressed the intention to move her father from his nursing home to her home without any plan for how to provide the high level of care he required, which the court believed was inappropriate to his condition and not in his best interests. Evidence that the daughter had argued in a mortgage foreclosure proceeding that her father was incapacitated at the time he executed the mortgage, which was before he executed the power of attorney, and that the daughter had been suspended from the practice of law for numerous ethical violations, including conduct involving dishonesty and fraud, were both relevant and properly admitted, but were not the basis of the court’s decision. Estate of John Norman, an Incapacitated Person, 8 Fid.Rep.3d 283, No. 10631C of 2017 (Philadelphia O.C. 2018).
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— Short Term Rates for 2018 —
| Month | Annual | Semiann. | Quarterly | Monthly |
|---|---|---|---|---|
| Jan. | 1.68% | 1.67% | 1.67% | 1.66% |
| Feb. | 1.81% | 1.80% | 1.80% | 1.79% |
| March | 1.96% | 1.95% | 1.95% | 1.94% |
| April | 2.12% | 2.11% | 2.10% | 2.10% |
| May | 2.18% | 2.17% | 2.16% | 2.16% |
| June | 2.34% | 2.33% | 2.32% | 2.32% |
| July | 2.38% | 2.37% | 2.36% | 2.36% |
| Aug. | 2.42% | 2.41% | 2.40% | 2.40% |
| Sept. | 2.51% | 2.49% | 2.48% | 2.48% |
| Oct. | 2.55% | 2.53% | 2.52% | 2.52% |
| Nov. | 2.70% | 2.68% | 2.67% | 2.67% |
| Dec. | 2.76% | 2.74% | 2.73% | 2.72% |
— Mid Term Rates for 2018 —
| Month | Annual | Semiann. | Quarterly | Monthly |
|---|---|---|---|---|
| Jan. | 2.18% | 2.17% | 2.16% | 2.16% |
| Feb. | 2.31% | 2.30% | 2.29% | 2.29% |
| March | 2.57% | 2.55% | 2.54% | 2.54% |
| April | 2.72% | 2.70% | 2.69% | 2.68% |
| May | 2.69% | 2.67% | 2.66% | 2.66% |
| June | 2.86% | 2.84% | 2.83% | 2.82% |
| July | 2.87% | 2.85% | 2.84% | 2.83% |
| Aug. | 2.80% | 2.78% | 2.77% | 2.76% |
| Sept. | 2.86% | 2.84% | 2.83% | 2.83% |
| Oct. | 2.83% | 2.81% | 2.80% | 2.79% |
| Nov. | 3.04% | 3.02% | 3.01% | 3.00% |
| Dec. | 3.07% | 3.05% | 3.04% | 3.03% |
— Long Term Rates for 2018 —
| Month | Annual | Semiann. | Quarterly | Monthly |
|---|---|---|---|---|
| Jan. | 2.59% | 2.57% | 2.56% | 2.56% |
| Feb. | 2.66% | 2.64% | 2.63% | 2.63% |
| March | 2.88% | 2.86% | 2.85% | 2.84% |
| April | 3.04% | 3.02% | 3.01% | 3.00% |
| May | 2.94% | 2.92% | 2.91% | 2.90% |
| June | 3.05% | 3.03% | 3.02% | 3.01% |
| July | 3.06% | 3.04% | 3.03% | 3.02% |
| Aug. | 2.95% | 2.93% | 2.92% | 2.91% |
| Sept. | 3.02% | 3.00% | 2.99% | 2.98% |
| Oct. | 2.99% | 2.97% | 2.96% | 2.95% |
| Nov. | 3.22% | 3.19% | 3.18% | 3.17% |
| Dec. | 3.31% | 3.28% | 3.27% | 3.26% |
The statute of limitations for an action for legal malpractice in the administration of an estate began to run when a declaratory judgment action was filed to correct the alleged legal errors, and not when the court ruled in favor of the declaratory judgment and confirmed the errors. McDonald v. McCreesh, 155 Montg. Law Reptr. 285 (Montgomery Co. C.P. 3/12/2018), aff’d, 1128 EDA 2018 (Pa. Super. 12/27/2018).
A new Webcalculator for “grantor retained annuity trusts” (GRATs) is now up and running.
The Internal Revenue Service has released Rev. Proc. 2018-57, 2018-49 I.R.B. ___ (12/3/2018), with the official inflation adjustments for 2019. The published adjustments for income taxes differ in many cases from the inflation adjustments that were published here in September, after the release of the Chained Consumer Price Index (C-CPI-U) for August 2018, but the estate and gift tax numbers turned out as predicted.
The following are the significant federal estate planning numbers, with the numbers for 2018 shown in parentheses:
- The base applicable exclusion amount (and generation-skipping tax exemption) will be $11,400,000 (was $11,180,000 for 2018).
- The annual gift tax exclusion will be $15,000 (was $15,000, so unchanged).
- The annual gift tax exclusion for a non-citizen spouse will be $155,000 (was $152,000).
- The “2 percent” amount for purposes of section 6166 will be $1,550,000 (was $1,520,000).
- The limitation on the special use valuation reduction under section 2032A will be $1,160,000 (was $1,140,000).
- The top (37%) income tax bracket for estates and trusts will begin at $12,750 (was $12,500).
- The maximum zero rate amount for capital gains for estates and trusts will be $2,650, and the maximum 15-percent rate amount will be $12,950.
- The alternative minimum tax exemption for a estates and trusts will be $25,000 (was $24,600), and the phaseout of the exemption will start at $83,500 (was $81,900).
The IRS has issued another private letter ruling granting retroactive tax effect to a judicial reformation of a trust which the IRS agreed did not carry out the intentions of the settlor due to an error by the attorney who prepared the trust document.
In PLR 201843007, the IRS granted retroactive effect to a court reformation of a trust’s “crummey powers,” which allowed the settlor’s children to withdraw the entire amount of each contribution to the trust, and provided for the withdrawal rights to lapse in full at the end of the year (or 31 days after the gift, whichever was later). This was contrary to the goals of the settlor, because the withdrawal rights were not limited to the annual gift tax exclusions, and the lapses were not limited to the greater of $5,000 or 5% of the trust principal, with the result that the children were deemed to have made gifts to the trust when their withdrawal rights lapsed. The IRS concluded that the judicial reformation was to correct a “scrivener’s error,” and that as a result of the reformation, the children did not have general powers of appointment and did not make gifts to the trust. This ruling is consistent with the principles explained in my article “Tax Effects of Retroactive Reformations and Modifications.” See also my article “Drafting Crummey Powers” for additional information about why the trust language was defective and why reformation was needed.
The following article is a combination of materials created for the Pennsylvania Bar Institute’s Estate Law Institute for 2018. The section on sole use trusts is adapted from the “overview” and “details” texts that are part of the Sole Use Trust…
The Internal Revenue Revenue has announced cost-of-living changes to limitations on benefits and contributions for retirement plans in 2019. Notice 2018-83, 2018-47 I.R.B. ___ (11/19/2018).
Among the most common limitations are the following changes:
- The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.
- The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000.
- The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
S.B. 1886 was signed into law by Governor Wolf on October 24, 2018, becoming Act 114 of 2018.
The act amends 20 Pa.C.S. § 5521(c) to require Clerks of the Orphans’ Court to report delinquencies in the filing of annual reports by guardians of incapacitated persons to the court, and to require the Orphans’ Courts to develop procedures for the examination of annual reports “to ensure that the guardians are acting in the best interests of the incapacitated persons.”
The act takes effect in 60 days.