Thursday, October 25, 2007

PA PEF Code Revisions Proposed

On October 22, 2007, the PA Joint State Government Commission posted a Report, entitled "Probate, Estates, and Fiduciary Code - Proposed Amendments", derived from its Advisory Committee on Decedents' Estates Laws, addressed to the Pennsylvania General Assembly, recommending omnibus changes to the PA Probate, Estates & Fiduciaries Code, Title 20, of PA Consolidated Statutes. The full Report can be accessed here (PDF, 64 pages).

What is the JSGC-ACDEL?

The Joint State Government Commission Advisory Committee on Decedents’ Estates Laws is a standing group of attorneys and judges from across the Commonwealth who assist the General Assembly by recommending improvements to Pennsylvania law relating to Title 20 of the Pennsylvania Consolidated Statutes (20 Pa.C.S.), known as the Probate, Estates and Fiduciaries Code, and related statutes.

Since 1945, the Advisory
Committee has provided expertise and advice in formulating legislation aimed at modernizing Pennsylvania law to make it more efficient. After reaching consensus on its legislative recommendations, the Advisory Committee presents its recommendations to the Task Force on Decedents’ Estates Laws, which is a bicameral and bipartisan panel of legislators.

The Task Force then considers the recommendations and decides whether to
authorize the Joint State Government Commission to publish a report containing the recommendations, which serve as a basis for legislation. * * *

On October 17, 2007, the Task Force authorized both the publication of a report containing the recommendations of the Advisory Committee and the introduction of the legislation contained in this report. * * *

What statutes would be affected by the recommendations in the October, 2007 JSGC-ACDEL Report?

The newly-issued Report contains significant, remedial or clarification changes recommended for the PEF Code, as discussed over the past two years.

The Report provides background about the concerns addressed, and explains the intended effects of the changes [links added].

  • Proposed Amendments to the Uniform Trust Act
    • On July 7, 2006, Senate Bill 660 of 2005 was enacted as amended and became Act No. 98 of 2006. The provisions of 20 Pa.C.S. Chapter 77 became effective on November 6, 2006.
    • On February 8, 2007, the Advisory Committee met to discuss and reach consensus on the proposed amendments and comments, which are contained in this report.
    • In addition, conforming amendments are proposed for 20 Pa.C.S. § 3162 (advertisement of grant of letters), which are also contained in this report.
  • Proposed Amendments Regarding the Repeal of the Rule Against Perpetuities
    • Act No. 98 of 2006 also contained amendments regarding the rule against perpetuities.
    • However, the Advisory Committee revisited the issue and concluded that the total repeal of the rule against perpetuities creates the possibility of an inadvertent triggering of the Delaware tax trap, an arcane and archaic provision in §§ 2041(a)(3) and 2514(d) of the Internal Revenue Code.
    • On February 8, 2007, the Advisory Committee met to discuss and reach consensus on the proposed amendments.
    • The proposed amendments, along with an explanatory note, are contained in this report and concern § 6107.1(b) (applicability of rule against perpetuities).
  • Proposed Amendments Regarding the Enforcement of the Contribution or Exoneration of Federal Estate Tax
    • On February 8, 2006 and February 8, 2007, the Advisory Committee met to discuss and reach consensus on amendments to 20 Pa.C.S. § 3706 (enforcement of contribution or exoneration of Federal estate tax), in light of the case of In re Estate of Zambrano [875 A.2d 307 (Pa. Super. 2005)], in which the Superior Court held that a party did not have to pay his apportioned share of Federal estate tax until the fiduciary had first paid the tax in full and the Federal estate tax return had been fully processed by the Internal Revenue Service.
    • The Advisory Committee believed that this holding is inconsistent with the original intent of § 3706.
    • The proposed amendments and comment regarding § 3706 are contained in this report.
  • Proposed Amendments to the Uniform Principal and Income Act
    • On February 8, 2006 and February 8, 2007, the Advisory Committee met to discuss and reach consensus on amendments to 20 Pa.C.S. Chapter 81 (Pennsylvania Uniform Principal and Income Act).
    • First, the Advisory Committee considered proposed language amending the definition of income in § 8105(d)(3) and adding paragraph (5.1) to § 8105(e) to provide that the trustee may, in the trustee's discretion from time to time, determine whether to average the net assets of the trust over a smoothing period of three, four or five years.
    • Second, the Advisory Committee considered amendments to § 8149 (retirement benefits, individual retirement accounts, deferred compensation, annuities and similar payments) and a comment stating that the amendments to subsection (c) specifically confirm the power of a trustee to exercise the power to adjust, the power to convert to a unitrust and the power to draft a trust as a unitrust independently with respect to retirement benefits and a trust to which they are payable, as allowed by Federal tax law.
    • The proposed amendments and comment regarding the Uniform Principal and Income Act are contained in this report.
  • Proposed Amendments Regarding Death During a Divorce Proceeding
    • Act 175 of 2004 amended 23 Pa.C.S. (the Domestic Relations Code) and added §3323(d.1) * * *.
    • The act also added 20 Pa.C.S. § 2203(c) * * *.
    • However, these amendments only address a surviving spouse’s right of election.
    • The amendments do not address intestacy, the modification of a will by circumstance, the modification of a trust by circumstance, and the modification of life insurance and pensions by circumstance.
    • Accordingly, on February 8, 2007, the Advisory Committee, after consultation with the Joint State Government Commission Advisory Committee on Domestic Relations Law, reviewed proposed amendments to 20 Pa.C.S. §§ 2106 (forfeiture), 2507 (modification by circumstances), 6111.1 (modification by divorce) and 6111.2 (effect of divorce on designation of beneficiaries) and reached consensus on the need to amend these provisions.
    • The proposed amendments regarding §§ 2106, 2507, 6111.1 and 6111.2 are contained in this report.
    • The Advisory Committee did not believe that any amendment to 20 Pa.C.S. § 5605(c) was necessary.
    • Furthermore, the Advisory Committee acknowledged that an individual could always draft a provision in his or her will leaving property to his or her spouse, specifying that such a gift is to be effective even though divorce proceedings are commenced. That intention would be given effect, and the testamentary gift would be honored and taken into account in the equitable distribution proceeding.
  • Proposed Amendments Regarding Powers of Attorney
    • The Superior Court in In re Weidner [895 A.2d 11 (Pa. Super. 2006), appeal granted, 906 A.2d 544 (Pa. 2006).] held that if an individual in a power of attorney authorizes an agent to engage in any transaction authorized by 20 Pa.C.S. Chapter 56, that authorization is not enough to alert the individual that the agent could change the beneficiary of a life insurance policy.
    • The court determined that the power of attorney in this case did not specifically provide the agent with the authority to engage in any matter relating to insurance. Therefore, the court did not hold that the agent possessed the authority but misused it, but rather that the agent did not have it in the first place.
    • On February 8, 2007, the Advisory Committee reviewed the implications of this holding and determined that it cast some doubt on the effectiveness of the short form power of attorney permitted by 20 Pa.C.S. § 5602.
    • Accordingly, it reviewed and reached consensus on an amendment to § 5603(p).
    • Subsequently, it determined that similar language should appear in § 5603(q), regarding the power to engage in retirement plan transactions.
    • The proposed amendments regarding § 5603 are contained in this report.
More details regarding the specific statutory sections affected are set forth in the Report's "Summary of Recommendations", on pages 7-10.

Involved estate & trust practitioners should read the full Report in anticipation of the PA Legislature's consideration of these recommendations, which appear non-controversial & beneficial.

Update: 12/07/07:

On Friday, December 7, 2007, an "omnibus" amendment bill, based on the Report referenced above, was introduced in the Pennsylvania Senate.

PA EE&F Law Blog posting "
Omnibus Bill re PEF Code Introduced" (12/07/07).

Update: 09/25/08:

With persistence, the current version of SB 1203, as supported by both the PA Bar Association and the PA Bankers Association, can be approved by the House and sent to the Governor for signature into law.
See: PA EE&F Law Blog posting"PBA Supports SB 1203 on PA UTA" (09/25/08).