OCTOBER 30, 2015 J. PAUL DIBERT ADAMS COUNTY BENCH BAR.
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Transcript of OCTOBER 30, 2015 J. PAUL DIBERT ADAMS COUNTY BENCH BAR.
OCTOBER 30, 2015J. PAUL DIBERT
ADAMS COUNTY BENCH BAR
BENEFICIARIES
REGISTER OF WILLS EXAMINER
DECEDENT
ORPHANS’ COURT
BOARD OF APPEALS
COMMONWEALTHCOURT
YOUNG ATTORNEY
WHONEVER
COMPLAINS?
Discussion Points with Slides
Definitions unique to the Act.
Do you need to care about the
1919 & 1961 Acts?
Pitfalls of 1982 Act.
New REV-1500.
Discussion Points with Slides
Schedule AU
Schedule C-SB
Regulations, Informational Notices
Insight into the current ActQuestions and hopefully answers.
Provisions of the ‘19 & ‘61 Acts
Both Acts tax only the event that occurs after death.
When that event ends, the original estate is reopened and the next event is taxed.
Successive life estates will keep original estate opened for years.
Provisions of the ‘19 & ‘61 Acts
When the estate is finally distributed outright; estate is closed.
A financial institution may ask you to certify that it can distribute the trust principal to the remaindermen.
Provisions of the ‘19 & ‘61 Acts
If you do not look into the Register of Will’s archives to verify that all inheritance taxes are paid on all taxable events in that estate’s existence, you could be liable for unpaid inheritance taxes.
Provisions of the ‘19 & ‘61 ActsEvents that would generate a
inheritance tax liability:Invasions of trust principalDistribution of annual 5 & 5 rights.
Deaths of prior life tenants.Death of a remainderman prior to the death of a life tenant.
Provisions of the ‘19 & ‘61 Acts
Power of appointment exercised by a life tenant to a class of beneficiaries other then the class on which the inheritance tax was prepaid.
See Willcox Est., 14 Fiduc. Rep. 314 (O.C. Del. 1964)
Provisions of the ‘19 & ‘61 Acts
Financial institutions change ownership several times and have no record of what they were paying out and to whom they were paying the trust income and/or trust principal.
A POINT TO REMEMBER ABOUT ‘19 and “61
When you are up to your butt in alligators it is had to remember your initial objective was to drain the swamp! [Finalize the estate]
The financial institution and the beneficiaies are the alligators.
Definitions Unique to Act
Definitions § 9102
Property or Estate
Value
Business of Agriculture
Date of Death
Pitfalls in the 82 Act
§ 9107 Transfers
(C3) Transfers within 1 year of
death
(c5) Retained life interest in
transferred asset
Pitfalls in the 82 Act
…expressly or impliedly retain
use, enjoyment, possession or the
right to income from…
Pitfalls in the 82 Act
Did the decedent keep a “string
attached to the asset” transferred?
Was the trustee allowed to give the
decedent income and/or trust
principal as needed?
Pitfalls of the “82 Act
Was the trust noted as irrevocable?
Did the decedent have any right to trust income, trust principal or the ability to change beneficiaries?
Pitfalls in the 82 Act
§ 9108 Joint Property
2 transfers by the decedent
within the 365 days prior to the
decedent’s DOT to 1 individual.
Pitfalls in the 82 Act
Decedent added to joint account
within 365 days of the decedent’s
DOD.
Account held by decedent, spouse
and daughter. See Pelles Estate
Pitfalls in the 82 Act
Decedent on deed to real estate
which was by “all rights” owned
by issue.
Financial Institution required it
for issue to buy property.
Pitfalls in the ‘82 Act
Taxed at ½ of DOD value less ½ of mortgage value if decedent was also on mortgage.
Pitfalls in the 82 Act
Any asset where the transferee
was added within 365 days of
decedent’s DOD is taxed under
§9107 (C3).
Pitfalls in the 82 Act
U.S. Savings Bonds purchased in 2
names and held in safe deposit box in
single name are either 100% taxable or
not taxable at all.
See Beggy Estate, 446 Pa. 166 (1971),
Pitfalls in the 82 Act
§ 9111(R) Retirement accounts
are taxable if decedent had the
right before DOD to access
account without 10% IRS excise
tax penalty.
Pitfalls in the 82 Act
Non-taxable retirement accounts
State Teacher’s Pension
State Employee’s Pension
State Police’s Pension
See Stegmaier Est., 424 Pa. 4 (1967),
Pitfalls in the 82 Act
County employee’s pension plans
with language that prohibits the
Commonwealth from taxing the
distributions for any purpose are
exempt from PA inheritance tax.
Pitfalls in the 82 Act
See: County Pension Law, 1971 P.L. 398, 126 P.S. § 11677
Pitfalls in the 82 Act
§ 9116 Adopted issue and step
issue have 2 lineal lines,
biological and marital. Both are
taxed at lineal rate.
Pitfalls in the 82 Act
Lineal descendents are by blood
and marriage to the decedent.
Siblings are by blood alone to
decedent.
Pitfalls in the ‘82 Act
Assets devised to decedent’s
spouse are taxed at the zero tax
rate. The devise is not exempt.
Assets held as Tenants by the
Entireties are exempt.
Pitfalls in the 82 Act
Debts and Deductions
All deductions are paid out of
the residue of the estate even if
the residue passes to the surviving
spouse at the zero tax rate.
Pitfalls in the 82 Act
For a transferee to benefit from
a deduction:
Probate must be insolvent or
transferee is liable for debt
And transferee pays the debt.
Pitfalls in the 82 Act
Common example:
2 individuals buy a house with a
mortgage as JTROS. 1 dies
before they get married
Pitfalls in the ‘82 Act
One half of the mortgage passes to the surviving joint owner of the real estate as it is attached to that specific asset,
Pitfalls in the 82 Act2 individuals buy a property as
JTROS. They get married and do not change deed. 1 dies. Is it taxable to surviving spouse since it is not held as Tenants by the Entireties?
Pitfalls in the 82 Act
Is accrued income tax liability on U.S. Saving Bonds allowable as a deduction?
If redeemed by estate and reported on Estate’s fiduciary income tax return!
Pitfalls in the 82 Act
If redeemed by estate and
reported on decedent’s final
lifetime IRS income tax return!
See Stewart and Krazner,
Fiduciary Review, July, 2001,
Pitfalls in the 82 ActFamily exemption allowed for a
surviving spouse.In default, a child living with the
decedent at the time of the decedent’s DOD.
Value is $ 3,500 and it must be paid to the individual.
Pitfalls in the 82 Act
Commissions for executor (trix)
and Administrator(trix) are a
question that has been discussed
for the 32+ years I worked for
the Department.
Pitfalls in the 82 ActAttached you will find a copy of
the commissions calculated through the Johnson Estate.
Remember LaRocca is the basis for determining fees for work needed to finalize the estate.
Pitfalls in the 82 ActI only suggest that you use the
attached chart as a guideline.
You must look to the local Orphans’ Court rules to determine the correct procedure in a specific court.
Statement of Policy, Number 11–1877
Ever since the Uniform Trust Act was passed the Department has been worried about trusts being terminated before the surviving spouse dies.
Therefore the above Statement was issued with a revised Schedule “O”.
Statement of Policy, Number 11–1877
A copy of the Statement was available on the web for you to bring to this presentation.
There are several sections of the Trust Act which allows an estate to terminate a trust but the Department has only noted 20 Pa.C.S. § 7710.1.
Statement of Policy, Number 11–1877
I have not heard of this Statement being enforced as of this presentation.
A copy of the revised Schedule “O” is attached for this presentation.
Agricultural Exemptions
There are 2 exemptions available to an estate which has a farm as an asset.
1st is the “business of agriculture.
Agriculture ExemptionsUnder the “business of
agriculture, the exemption extends to the real estate and the farm buildings.
It doers not include the farm equipment, livestock, crops or homestead + 1 acre.
Agriculture ExemptionsThe farm must have a profit of
$2,000 per year and is required to report that the farm is still in existence for a 7 year period after the death of the decedent.
The beneficiaries can be of any blood relationship to the decedent.
Agriculture Exemptions
If the farm fails to stay in business for 7 years, the beneficiaries of the farm owe inheritance tax plus interest from the decedent’s DOD.
Agriculture ExemptionThe second exemption is instant
if the farm has qualified under one of the several types of exempt real estate. This exemption does not include the farm buildings, equipment, and homestead + 1 acre.
Exemption for “Small Business”The business must have a net
worth of less then $ 5,000,000.It must employ less then 50
“equivalent full time” employees.The business must report to the
Department annually for 7 years after the death of the decedent.
Agriculture and “Small Business Exemption Forms
and Regulations
The regulations and forms are similar as the “Small Business” exemption legislation was developed on the basis of the initial agricultural wording.
REV-1500(4-14)
The latest inheritance tax return has some unique changes that I will point out.
Line one is for SS#, DOD and DOB.Line 2 is for decedent’s last name,
first name and middle initial.
REV-1500(4-14)The new ovals are:
4: Agricultural exemption10: Litigation proceeds received11: Non-probate transferee return, Schedule F & G only.
13: Business Assets14: Spouse is sole beneficiary, no trust involved.
Inheritance Tax Bulletin 2015-1
This bulletin explain the effects of the May 20, 2014 Whitewood v. Wolf (992 F. Supp. 2d 410(M.D. Pa. 2014) decision (“Whitewood”).
Inheritance Tax Bulletin 2015-1
Basically the bulletin affirms that a decedent who was a party to a same-sex marriage, legally recognized within Pennsylvania, the surviving same-sex spouse shall be treated as a “husband” or “wife”.
Inheritance Tax Bulletin 2015-1
for purposes of establishing rights and responsibilities under the Act.
• Any natural or adopted child or a stepchild shall be recognized as a lineal descendent.
• Accounts held as JTROS will be consider husband and wife accounts.
BENEFICIARIES
REGISTER OF WILLS EXAMINER
DECEDENT
ORPHANS’ COURT
BOARD OF APPEALS
COMMONWEALTHCOURT
YOUNG ATTORNEY
WHONEVER
COMPLAINS?
Adams County Bench Bar
Questions and hopefully answers.
Thank You
J. Paul DibertJ. Paul Dibert Consulting
Harrisburg PA