PA Small Estate & Deposit Payment Thresholds Increased

The Pennsylvania Probate, Estates & Fiduciaries Code (Title 20 of PA Consolidated Statutes) was amended in minor, but helpful, ways by Act 35 of 2013, which became effective on August 31, 2013.

The changes in affected sections of Title 20 are noted in the adopted form of House Bill 513, Printer's No. 2169, of the 2013-2014 Legislative Session.  HB 513's History indicates it was adopted by the Legislature on June 29, 2013, and signed by the Governor on July 2, 2013.  It became effective 60 days thereafter.

Under long-standing statutory law regarding "Dispositions Independent of Letters", pursuant to 20 Pa. C.S. § 3102 ("Settlement of small estates upon petition"), a "small estate" -- defined as one with assets less than $25,000 and no real estate -- could be settled by a customized petition presented to the Orphans' Court Division, as an alternative to a formal probate procedure.

Section 3102 provides, in its first sentence, as follows:

When any person dies domiciled in the Commonwealth owning property (exclusive of real estate and of property payable under section 3101 (relating to payments to family and funeral directors), but including personal property claimed as the family exemption) of a gross value not exceeding [$$$ = AMOUNT], the orphans' court division of the county wherein the decedent was domiciled at the time of his death, upon petition of any party in interest, in its discretion, with or without appraisement, and with such notice as the court shall direct, and whether or not letters have been issued or a will probated, may direct distribution of the property (including property not paid under section 3101) to the parties entitled thereto.

The prior law had stated an AMOUNT of $25,000.  The amendment increased the AMOUNT to $50,000, but made no other changes to that Section.

Other, more frequently used dispositions of a decedent's assets of a limited value without a formal probate were provided under 20 Pa. C.S. § 3101  ("Payments to family and funeral directors").  That Section continues to provide for payments directly to certain persons or organizations regarding five different classes of assets up to certain amounts.

Act 35 amended the maximum amounts for two of the five classes of assets, as set forth in subsections (b) and (c) only.

• (a)  Wages, salary or employee benefits (remains at not more than $5,000)
• (b)  Deposit account (previously not more than $3,500, which was increased to $10,000)
• (c)  Patient's care account (previously not more than $4,000, which was increased to $10,000)
• (d)  Life insurance payable to estate (remains at not more than $11,000)
• (e)  Unclaimed property (remains at not more than $11,000)

In two further helpful tweaks to subsection (b), Act 35 clarified that a "credit union" is included as a financial institution holding a "deposit account" and authorized to make such payments directly, without proof of an estate administration.  It also amended the law to be directive, as opposed to optional, for a financial institution to make such payments upon proper application.  The word "may" was replaced with "shall".

Section 3102 (b) now provides:

Deposit account.--Any bank, savings association, savings and loan association, building and loan association, credit union or other savings organization, at any time after the death of a depositor, member or certificate holder, shall pay the amount on deposit or represented by the certificate, when the total standing to the credit of the decedent in that institution does not exceed $10,000, to the spouse, any child, the father or mother or any sister or brother (preference being given in the order named) of the deceased depositor, member or certificate holder, provided that a receipted funeral bill or an affidavit, executed by a licensed funeral director which sets forth that satisfactory arrangements for payment of funeral services have been made, is presented. Any bank, association, credit union or other savings organization making such a payment shall be released to the same extent as if payment had been made to a duly appointed personal representative of the decedent and it shall not be required to see to the application thereof. Any person to whom payment is made shall be answerable therefor to anyone prejudiced by an improper distribution.

Such amendments are helpful to many folks facing an immediate need for money for death-related expenses, or simple collection of stray or remaining assets in a decedent's name, such as a solely-held financial account, a small insurance policy, periodic final wages and benefits, or a balance remaining in a patient's care facility account.  

Likely, these changes will not affect old or stale accounts, due to periodic sweep collections by the Commonwealth since 1998 of inactive assets pursuant to the Unclaimed Property Law and Regulations.  However, subsection (e) of Section 3102 would permit recovery of such collected funds due to a decedent, if less than $11,000.

These sections do not avoid accountability or even tax reporting upon a death, but provide an expedited way for collection and application of funds without formal probate.

Karoly Estates Will Forgery Case Ruling

The Morning Call (Allentown, PA) published a news report entitled Northampton County judge upholds Karoly wills (04/05/13), by Peter Hall, highlighting the most recent development in the Karoly Estates forgery of wills matter: "John Karoly Jr.'s sisters failed to prove he entered forgeries in brother's estate, judge rules."

A Northampton County judge has affirmed a decision that sisters of disgraced Lehigh Valley lawyer John Karoly Jr. failed to prove wills he submitted in his brother Peter Karoly's estate are forgeries. * * * 

In a 31-page opinion Friday, President Judge F.P. Kimberly McFadden rejected criticism of retired Bucks County President Judge Isaac Garb's decision that the wills were authentic.

Garb, appointed as special master of the case, presided over a lengthy trial in 2011 and issued his ruling last August. Karoly's sisters asked McFadden to overturn it. * * *

Garb said the sisters failed to establish "by clear, direct, precise, and convincing evidence" that the 2006 wills were "forged and therefore invalid."

Peter Karoly, a well-known medical malpractice lawyer, and his wife, dentist Lauren Angstadt, died in February 2007 when their private plane crashed on approach to a Massachusetts airport.

The Karolys' three sisters charged that John Karoly Jr. fraudulently created wills dated 2006 for the couple — a conclusion also reached by a 2008 federal grand jury that indicted him, his older son J.P. Karoly, and Dr. John Shane, who witnessed the documents. * * *

Since 2007, these will forgery cases and its progeny have twisted and turned, but now appear near resolution, based upon extensive fact findings and trial court review.

Referencing the "burden of proof" test applied to the facts presented by the contestants, the proceedings are instructive under established will contest principles.  

However, the proceedings drew my attention because the United States Department of Justice became involved after an FBI investigation and federal grand jury findings derived from will forgery allegations.  See: PA EE&F Law Blog postings Will Contest from Bethlehem, PA (04/10/07); Trusts & Estates ... and the FBI: Pt. I. (05/22/07); Trusts & Estates ... and the FBI: Pt. II (05/23/07); and Attorney in PA Indicted for Will Fraud (09/26/08).  See also postings by Professor Gerry Beyer on his Wills, Trusts & Estates Prof Blog: The FBI-Will Contest Interface (05/22/07);  Lawyer fakes brother's will (09/28/08), and Judge upholds Karoly Wills (04/07/13).

The local articles reported alleged conduct and resulting charges as news.  However, unless the recent trial court rulings are reversed on appeal to the Pennsylvania Superior Court or Supreme Court, the will contest allegations appear resolved in favor of the surviving brother, John Karoly.

This extended odyssey shows the depth, detail, and delay involved in will contests.  The present status warns us against prejudgment or sensationalism during its progress.

In my prior posting on September 26, 2008, I pondered other possible effects of these proceedings:

To date, this case involves application of federal fraud and conspiracy laws, investigation by the FBI, examination & prosecution by the U.S. Attorney's Office, with anticipated resolution in a federal court.

This case could become a template for future prosecution of other cases involving intentional fraud in the preparation of testamentary documents offered for probate or for claim.

Although these cases remain very instructive, the collective federal and county court proceedings did not become such a "template" to insert federal laws into state probate matters.  We still rely upon state laws and procedures for resolution of will contests.  In these specific will contests, resolution appears nearly complete.

New Postings of PA OC & R/W Forms Online

While seeking to access Pennsylvania Orphans' Court forms through this Blog's sidebar links to their source on the Internet, I discovered my links are no longer valid.  What happened?  Something changed.

On January 31, 2013, the website of the Uniform Judicial System of Pennsylvania was completely refreshed and reformatted.  Not only is there a new homepage for the PA UJS, there is also a new "portal" leading into it.

Those Orphans' Court forms were reposted to different Internet references.  Now, these forms are displayed in a more pleasant presentation, along with other content formerly on that website.

On the related new PA UJS Portal, the layout is straightforward and efficient.  The left column offers many direct links to various sections of the new website, much like a book index, thereby avoiding navigation delays.  Such links include:

• UJS Web Portal
• Attorney Registration
• County Court Calendar
• Rules of Court
• Public Calendar Schedule
• Public Web Docket Sheets
• Financial Records

The main PA UJS website is more colorful and animated.  "Welcome to the Pennsylvania Judiciary's New Website" presently is displayed upon opening its home page:

Pennsylvania’s Unified Judicial System was the second state court system—by one week—to launch a website in 1995. With nearly 60 million hits last year, Pennsylvanians have come to depend on pacourts.us for information about the judiciary, court cases and the most recent court news and statistics.

The UJS is dedicated to continuously improving the way we provide information about the courts. Our goal was to develop something that is easy to use, attractive in appearance and capable of serving our vastly diverse audience. We want to keep you up-to-date regarding events in the judiciary and news and issues, and this space will allow us to do that. 

In a Press Release entitled Redesigned courts website helps meet changing user expectations, dated January 31, 2013, the Administrative Office of Pennsylvania Courts announced the redesigned website:

Enhancements to the new website include redesigned page layouts, improved navigation and organization of various court information areas, and highlighted news of interest to the court community and general public. * * *

The changes provide Pennsylvania’s judiciary a unified website while providing each court the opportunity to feature its own news and information on separate web pages. * * *

Among the radical changes to the PA UJS website is a redesigned home page, offering recent news involving Pennsylvania's Court System.  On the right sidebar are links for the Court's welcome message, Opinions, Docket Sheets, Fee or Fine Payments, Public Records, and Forms.

In an expansive area below is a listing, with links, to components of the Court System, by function and organization, like a "mini-portal".  This lower banner appears consistently on every web page, so you can't get lost.

A link to the Orphans' Court and Register of Wills forms is prominently featured as the first category in the full list of all types of court forms provided "For the Public".

The current approved OC/RW forms, which remain unchanged so far in 2013, are then divided into categories:

• Audit and Administration (7 forms)
• Guardianship (6 forms)
• Abortion Control Act (2 forms)
• Register of Wills (10 forms)
• Model Account Forms (4 forms)
• Foreign Adoption Forms (9 forms)

My random sampling of forms indicates that most are in fillable PDF format.  This allows data entry into the form, which could be saved using PDF editing software to retain it for later revision.  PDF reader or viewer software could only print the form with data, but not save it, so that, upon closing it online, such personalized data would be lost. See: Wikipedia's List of PDF Software.

These website revisions mean greater convenience for the public and for practitioners.  

But it creates work for me.  I must go back -- once again -- and reset links in my Blog to those forms' new online references.

“This is a new year. A new beginning.

And things will change.”

― Taylor Swift
(popular singer, born December 13, 1989,
in Wyomissing, Berks County, PA) 

Another PA Inheritance Tax Exemption Engrafted?

On January 23, 2013, the Central Pennsylvania Business Journal reported in an article entitled Pa. House committee passes bill to end 'death tax', that the Finance Committee of the Pennsylvania House approved a bill Tuesday for further consideration by the full House that would eliminate Pennsylvania inheritance tax on family-owned businesses.

Cumberland County Republican Rep. Stephen Bloom introduced the measure, which also came up last legislative session.

"The death tax hits businesses during a time when they are most economically vulnerable, crippling our next generation of job creators," Bloom said in a statement. "This is an unnecessary loss to our economy and to the businesses that create 65 percent of Pennsylvania jobs."

House Bill 48 has 70 co-sponsors in the House and is backed by the National Federation of Independent Business in Pennsylvania, the Pennsylvania Retailers' Association and the Americans for Prosperity-Pennsylvania, among others. * * *

In a prior article by Alex Nixon, entitled Proposal would exempt family businesses from Pennsylvania inheritance tax (01/16/13), the reasons for the proposed changes were discussed from the sponsors' and beneficiaries' viewpoints.

The state‘s inheritance tax can leave heirs scrambling to cover a tax bill. And many end up selling the business or taking out costly loans.

“If something were to happen suddenly to my father, there would have been tens of thousands of dollars of estate taxes owed,” said Dave Cranston Jr., president of Cranston Material Handling Equipment Corp. in Robinson. “None of us have that (money) sitting around waiting.”

Cranston owns 80 percent of the business founded by his grandfather in 1957, and his father is alive and well.

But a bill before Harrisburg lawmakers could end the worry for other family-owned companies across the state.* * *

Such relief is proposed in a fashion generally paralleling that which took effect on July 1, 2012, to exempt family farms from such taxation.  See: PA EE&F Law Blog, Family Farms Exempted from PA Inheritance Tax (07/03/12).

Reporter Melissa Daniels, of the Pennsylvania Independent, had interviewed me earlier this year as she prepared her article entitled Family owned businesses could see ‘death tax’ exemption (01/02/13).

Some Pennsylvania lawmakers say the state’s inheritance tax is inherently unfair.
While those lawmakers succeeded in eliminating the tax for family owned farms last year, this session marks round two, with family owned businesses possibly getting a break.

State Rep. Steve Bloom, R-Cumberland, will soon introduce legislation to eliminate the inheritance tax on business assets, including real estate, for children, siblings or other relatives of a decedent.

He led similar legislation last year that exempts family owned farms from paying the tax.

Bloom’s proposal chips away at the tax, rather than eliminating it altogether. But whether another exemption happens will depend on whether lawmakers can stand losing state revenue. * * *

She quoted my concerns about additional changes to Pennsylvania's Inheritance Tax law motivated by one constituency without regard to the effect upon other taxpayers.  I believe that reforms should consider the entire scope of the tax, particularly in view of the transitional and uncertain nature of the federal estate, gift, and generation-skipping tax systems.

But creating parsed-out exemptions in tax codes can create an extra layer of confusion, despite the intent, said Neil Hendershot, a Harrisburg-area attorney who specializes in estate planning.

The inheritance tax is convoluted on its face, he said, with different rates for different situations, and various reporting requirements that may or may not apply to all situations.

“It bears a review but doing it on an ad hoc basis is going to make it more and more complicated,” Hendershot said.

Hendershot said he would prefer to see the law streamlined for all asset classes, or perhaps revamped with advice from a panel of experts. Issues surround the tax, such as privacy concerns on making asset values public information, that could be part of the discussion, he said.

Pennsylvania's Inheritance Tax Laws derive from roots planted in 1826.  Pennsylvania was the first state to apply an inheritance tax, and has done so continuously since.  

Like a tree long-grown and mature, Pennsylvania's Inheritance Tax laws and administrative system may require pruning -- but not just the one low-hanging branch on one side which bothers some nearby.  It is time to examine the living purpose of, and the shadow cast by, that tree in its entirety, thoughtfully and skillfully.  

The Legislature, instead, should constitute a qualified study group to do just that, with the interests of all Pennsylvanians in mind.

Family Farms Exempted from PA Inheritance Tax

On July 2, 2012, Governor Tom Corbett signed legislation that, effective after June 30, 2012, exempts working farms and some related agricultural commodities from Pennsylvania Inheritance Tax.  

The Governor's Press Release was posted by PR Newswire under the title Pennsylvania Governor Tom Corbett Ends Burden for Farmers by Eliminating Inheritance Tax (07/01/12):

Pennsylvania farmers can now pass their farms on to their heirs without worrying they will have to pay steep "death taxes" to keep them in the family.

"The death tax has forced too many families to sell their legacy, their land and their way of life," said Governor Corbett. "This tax has put too many farms out of business because it was too expensive for farmers to pass them down to their children. This will happen no more. We intend to save our farms."

Previously when a landowner died, heirs to their farm property had to pay an inheritance tax of 4.5 percent if they were adult children and 12 percent if they were siblings of the deceased.

"The inheritance tax has been a burden on farm families for decades," said Agriculture Secretary George Greig. "By eliminating this tax, Governor Corbett solidified his commitment to Pennsylvania farm families, and to keeping farmers farming for generations. This law provides farmers the opportunity to save thousands of dollars in inheritance tax, allowing them to reinvest in their agricultural operations." * * *

There was some confusion whether the bill was signed into law on June 30th, when first announced, or later as a part of the budget bill signed by the Governor on July 2nd.  A Press Release by the Governor's Office issued on July 3, 2012, confirms that the relevant bill was signed on July 2nd.  However, the provisions related to this new exemption "shall apply to the estates of decedents dying after June 30, 2012."

The tax relief originally was introduced in the House as House Bill 1864, PN 2401, by Representative Stephen Bloom, of Cumberland County, PA, as sponsored by many other representatives.  That bill provided, simply:

Section 2111.  Transfers Not Subject to Tax.‑‑* * *

(s)  A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a), to lineal descendants or siblings is exempt from inheritance tax.

The objectives of HB 1864 were supported by the Pennsylvania Farm Bureau, which provided testimony on October 17, 2011 to the PA House Finance Committee in support of Inheritance Tax reduction or elimination, including the proposed exemptions provided in HB 1864.  See: Testimony (PDF, 6 pages).

That Bill's objectives became incorporated into the omnibus budget bill, HB 761, PN 3894.  

This lineage was described by the House Republican Caucus in a posted article, Inheritance Tax Relief Measure Heads to Governor’s Desk (06/30/12):

A measure to end the financial burden of Pennsylvania’s inheritance tax on surviving farm family members has become part of the 2012-13 state budget package, which was sent to the governor tonight, said Rep. Stephen Bloom (R-Cumberland).

Bloom’s original bill, House Bill 1864, would exempt transfers of agricultural assets from the Pennsylvania inheritance tax when the receiving heir is a sibling or child of the deceased farmer. The exemption was incorporated into the omnibus Pennsylvania Tax Code bill (House Bill 761) by the Senate this week and passed finally by the House today.

“This measure will prevent the state from continuing to penalize farm families in Pennsylvania during a time when they are most economically vulnerable,” said Bloom. “By eliminating the death tax on transfers of ag assets, we can help farm families keep farming successfully in future generations.”

In addition, Bloom’s initiative would extend the new inheritance tax exemption to farm commodities, such as livestock and crops. It would also exempt from the death tax forest reserves that are passed along from a parent to a child or the parent’s brother or sister.

“This measure is a huge win for Pennsylvania farm families,” said Bloom. “Too many family farms have been divided up and sold when a loved one dies, because surviving family members are unable to pay the burdensome inheritance tax on their farm property.”

The House originally approved Bloom’s measure in December, on a 190-1 bipartisan vote. Companion legislation introduced by Sen. Dominic Pileggi (R-Chester/Delaware) was also amended into the Pennsylvania Tax Code, which was sent to the governor as part of the 2012-13 budget package tonight. * * *

Section 23 of HB 761, PN 3894, which became Act No. 85 of 2012, effective as of June 30, 2012, now provides, in part:

Section 2111 of the act is amended by adding subsections to read:

Section 2111.  Transfers Not Subject to Tax.‑‑* * *

(s)  A transfer of real estate devoted to the business of agriculture between members of the same family, provided that after the transfer the real estate continues to be devoted to the business of agriculture for a period of seven years beyond the transferor's date of death and the real estate derives a yearly gross income of at least two thousand dollars ($2,000), provided that:

(1)  Any tract of land under this article which is no longer devoted to the business of agriculture within seven years beyond the transferor's date of death shall be subject to inheritance tax due the Commonwealth under section 2107, in the amount that would have been paid or payable on the basis of valuation authorized under section 2121 for nonexempt transfers of property, plus interest thereon accruing as of the transferor's date of death, at the rate established in section 2143.

(2)  Any tax imposed under section 2107 shall be a lien in favor of the Commonwealth upon the property no longer being devoted to agricultural use, collectible in the manner provided for by law for the collection of delinquent real estate taxes, as well as the personal obligation of the owner of the property at the time of the change of use.

(3)  Every owner of real estate exempt under this subsection shall certify to the department on an annual basis that the land qualifies for this exemption and shall notify the department within thirty days of any transaction or occurrence causing the real estate to fail to qualify for the exemption. Each year the department shall inform all owners of their obligation to provide an annual certification under this subclause. This certification and notification shall be completed in the form and manner as provided by the department.

(s.1)  A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a), to lineal descendants or siblings is exempt from inheritance tax. [Emphasis added.]

Act 85 includes some new definitions relevant to the exemptions:

Section 2102.  Definitions.‑‑The following words, terms and phrases, when used in this article, shall have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning:

* * *

"Business of agriculture."  The term shall include the leasing to members of the same family or the leasing to a corporation or association owned by members of the same family of property which is directly and principally used for agricultural purposes. The business of agriculture shall not be deemed to include:

(1)  recreational activities such as, but not limited to, hunting, fishing, camping, skiing, show competition or racing;

(2)  the raising, breeding or training of game animals or game birds, fish, cats, dogs or pets or animals intended for use in sporting or recreational activities;

(3)  fur farming;

(4)  stockyard and slaughterhouse operations; or

(5)  manufacturing or processing operations of any kind.

* * *

"Members of the same family."  Any individual, such individual's brothers and sisters, the brothers and sisters of such individual's parents and grandparents, the ancestors and lineal descendents of any of the foregoing, a spouse of any of the foregoing and the estate of any of the foregoing. Individuals related by the half blood or legal adoption shall be treated as if they were related by the whole blood.

The effective date of the act is stated as follows in Section 30 (7) of the Act:  "The amendment or addition of sections 2102 and 2111(s) and (s.1) of the act shall apply to the estates of decedents dying after June 30, 2012."

Note: Thanks to Kathleen B. Murren, Esq., Professor, Legal Studies Chair, Legal Studies Department, Harrisburg Area Community College, for providing an initial inquiry to me, which led to my blog posting.

PA Inheritance Tax Summarized

Pennsylvania is one of 22 states (and the District of Columbia) that imposes an estate tax due after the death of an individual, and is one of only six states that applies an inheritance tax upon residents receiving assets from a decedent or against real estate located here.

With the increased asset thresholds applicable to federal estate, gift, and generation-skipping taxes, which reduce return reporting and tax payments, there is renewed focus on state death taxes. See: Where Not To Die In 2011 -- June Update (06/10/11), by Ashlea Ebeling, and How to Cut Estate Taxes -- Without Moving (07/19/11) by Hani Sarji, both posted by Forbes.

For those seeking a quick overview of the Pennsylvania Inheritance Tax, read the short, official summary that appeared on page 19 in The Tax Compendium (Dec., 2010), issued by the Pennsylvania Department of Revenue.

The cover letter to that report notes its educational use, in the form of a disclaimer: "The Tax Compendium describes the basis, rate and history of Pennsylvania taxes and is intended for research and background information. It is a general guide to Pennsylvania taxes, not a tax manual." 

With that said, here is its useful introductory summary about Pennsylvania "Inheritance and Estate Taxes":

The personal representative of the decedent’s estate or the transferee pays inheritance and estate taxes using proceeds from the estate. The local Register of Wills acts as the Commonwealth’s agent in the collection of these taxes.

The inheritance tax is imposed on the value of the decedent’s estate transferred to beneficiaries by will or intestacy. Certain inter vivos transfers are also subject to inheritance tax. A fractional portion of property held by the decedent and one or more other persons jointly with the right of survivorship is taxable in the decedent’s estate. Specified deductions may be taken in determining taxable estate value.

Inheritance tax is not levied on transfers of assets to certain types of entits. Transfers to governmental entities are exempt. Also exempt are transfers of property to charitable and fraternal organizations when the property is used exclusively for religious, charitable, scientific, literary, or educational purposes. Transfers to qualified veteran organizations are not subject to inheritance tax.

The tax rates levied against estates are based on to whom property is bequeathed. Inheritance tax on the transfer of non-jointly held property to spouses is levied at 0%. The transfer of property from children twenty-one years of age or younger to their parent (either natural, step, or adoptive) is taxed at a rate of 0%. All other transfers to lineal heirs are taxed at the rate of 4.5%. Transfers to siblings (defined as those having at least one parent in common with the decedent, related by blood or adoption) are subject to a tax rate of 12%. Transfers to all other persons are taxed at a rate of 15%.

The estate tax is a pick-up tax imposed to absorb the maximum amount of cedit allowed by federal estate tax law toward state death taxes. For residents, the estate tax represents the difference between the Pennsylvania inheritance tax plus death taxes paid to other states and the maximum federal credit for state taxes allowed by federal estate tax law.

If a resident owned or had an interest in real property or tangible personal property located in another state, the estate tax is reduced by the amount of death taxes paid to the other state or by a proportional amount of the federal credit, whichever is greater.

For nonresidents who owned or had an interest in property located in this Commonwealth, the estate tax is the difference between the Pennsylvania inheritance tax and a proportionate share of the federal credit in the same ratio that the property located in this Commonwealth subject to federal estate tax bears to the decedent’s gross federal estate.

The federal credit upon which the Pennsylvania estate tax is based is phased out between 2002 and 2005. Once the credit is completely phased out, the Pennsylvania estate tax is eliminated. However, estate tax collections will rebound when the federal credit is fully reinstated in 2013.

Inheritance and estate tax payments are due upon the death of the decedent and become delinquent nine months after the individual’s death. If inheritance taxes are paid within three months of the decedent’s death, a 5% discount is allowed. No discount is permitted for estate tax paid within three months of the death of the decedent.

The enabling legislation is Article XXI of the Tax Reform Code of 1971 (P.L. 6, No. 2), as amended, and Chapter 17 of Title 72 (Taxation and Fiscal Affairs), as amended.

For a technical analysis of the underlying law, see the law review article Individuals and Inheritance Taxes: A Praxeological Examination of Pennsylvania’s Inheritance Tax, by Timothy J. Witt, published in the Penn State Law Review, 114 Penn St. L. Rev. 1105 (2010), as noted in PA EE&F Law Blog posting PA Inheritance Tax as Law Review Subject (06/24/10).

The Department offers a few resources online to explain and administer Pennsylvania Inheritance and Estate Taxes, including a general explanation, a "Find Answers" Q&A Section, and official forms, returns, and instructions. The best explanations are found in primary documents -- the Inheritance Tax Return -- Resident Decedent (REV-1500 Form and its Instructions (REV-1501).

Revised PA RW-02 "Petition for Grant of Letters"

On October 11, 2011, the Pennsylvania Supreme Court approved a revision of a Form RW-02 (Petition for Grant of Letters) (PDF, 2 pages) for use in all Registers of Wills offices in the Commonwealth beginning thirty days later, on November 10, 2011.

In a Per Curium Order, which was posted by the PA Supreme Court on the website of the Administrative Office of Pennsylvania Courts on October 12, 2011, the Court acted upon the recommendation of its Orphans' Court Procedural Rules Committee.

The new Form RW-02 (Petition for Grant of Letters) bears a revision date of 10/11/11, and replaces a prior form adopted five years ago (Rev 10/13/06), which bore a longer title.

It will become available among the other "fill-in" forms on the AOPC's website. However, posting of the replacement form may not occur until its effective date.

The Index to Appendix - Orphans’ Court and Register of Wills Forms was amended accordingly.

I explored the need for a revision of this form previously.  See: PA EE&F Law Blog posting Update to Probate Petition in PA (01/18/2011).  Changing the current form was required due to the passage of Senate Bill 53, PN 2228, which was signed by the Governor as Act 85 of 2010, to become effective on December 26, 2010.

That Act inserted into the Pennsylvania Probate, Estates & Fiduciaries Code new provisions that eliminate a spouse's interest in an estate if a divorce action is pending (instead of finalized, as formerly provided), and if the grounds for divorce have been established. 

This revision of the form, however, goes beyond that substantive change, and offers a revised layout and order of data. The form also will serve as a formal entry of appearance for counsel, and will highlight whether a surety bond is required or not. The form will continue, at its end, to serve as a Register's Decree, if granted.

As a member of the Orphans' Court Procedural Rules Committee who participated in the recommendation process, I am pleased with the Court's actions, which were posted as follows:

In Re: Amendment of Form RW-02 (Petition for Probate and Grant of Letters) -- Appendix to Supreme Court Orphans' Court Rules, No. 548 Supreme Court Rules Docket
Opinion By: per curiam
Posted By: W.D. Prothonotary
	Date Rendered: 10/11/2011
	Date Posted: 10/12/2011
	Opinion Type: Rules	548spct.pdf
	Date Rendered: 10/11/2011
	Date Posted: 10/12/2011
	Opinion Type: Rules	548spct.attach1.pdf
	Date Rendered: 10/11/2011
	Date Posted: 10/12/2011
	Opinion Type: Rules	548spctattach2.pdf
	Date Rendered: 10/11/2011
	Date Posted: 10/12/2011
	Opinion Type: Rules	548spctattach3.pdf

IRS Issues Revised 706 Instructions & Preparer Requirements

On September 22, 2011, the IRS issued revised Instructions for the recently-finalized Form 706, according to Vincent F. Lackner, Jr., Esq., who sent an email to customers of The Lackner Group, Inc. today.  

As a software developer, he has tracked the development of that form and its instructions carefully.

Early yesterday [09/22/11] evening, the IRS authorized a final draft of the US 706 Instructions for 2011 for release to the general public.

Please feel free to download it from the following link and to circulate it to interested parties:  www.lacknergroup.com/Draft_11i706.pdf

The IRS's ability to post new forms and instructions to its website has been temporarily interrupted due to scheduled maintenance. When it is again able to post to its website next Wednesday morning (9/28/2011), the "Draft" watermark will be removed from this version.

The key change in these instructions relates to the portability of an unused exclusion amount for a married couple from the 1st estate to the 2nd estate. This feature is currently available only for 2011 and 2012 estates. * * *

Once finalized, those Form 706 Instructions should be updated on the IRS Online Instructions for Forms web page.

Vince also sent a detailed comparison of prior Form 706 Instructions and the latest issuance, which relates to the revised Form 706, issued on September 8, 2011.  See: PA EE&F Law Blog postings Revised IRS 706 Form Released (09/12/11) and 2010 Decedent Estates Granted Federal Filing & Payment Relief (09/13/11).

Vince emphasized an important point regarding filing of a Form 706 under certain circumstances:

Even for a married 2011 decedent with a gross estate of $5m or less (there are about 950,000 of these annually), you would need to file a timely and complete 706 in the 1st estate in order to preserve the unused exclusion amount for the 2nd estate.

You might consider filing an extension request (Form 4768) to gain more time to analyze this issue pending the IRS' release of the final 706 Instructions for 2011 sometime next week. * * *

Separately, on September 21, 2011, the IRS issued a Press Release entitled IRS Issues Guidance to Further Implement Return Preparer Oversight, IR-2011-96, which provided "clarification for tax return preparers about when to renew their preparer tax identification numbers (PTINs), how suitability testing will be conducted, and when the continuing education requirement will begin."

Key points include:

• The return preparer initiative requires anyone who is paid to prepare all or substantially all of any federal tax return or claim for refund to register with the IRS and obtain a PTIN. PTINs must now be renewed on a calendar year basis. 
• Certain preparers (individuals who are not attorneys, certified public accountants, or enrolled agents) also must pass a competency examination, undergo a suitability check and complete continuing education courses annually. 
• The IRS will designate individuals who meet these requirements as a Registered Tax Return Preparer, who will be authorized to prepare federal tax returns and claims for refunds and to represent their clients during an IRS examination of a tax return or claim for refund that the individual signed as the paid tax return preparer.
• All PTIN holders must renew their numbers using the online PTIN application or paper Form W-12 and pay the required fee ($64.25 for 2012) after Oct. 15 and before Jan. 1 annually.
• Certain tax return preparers who must pass a suitability check will have to provide their fingerprints so that a Federal Bureau of Investigation database search can be conducted. Generally, the fingerprint requirement will affect those preparers who currently have provisional PTINs.
• Attorneys, certified public accountants, enrolled agents, enrolled retirement plan agent and enrolled actuaries also are expected to be exempt from the fingerprinting requirement at this time.  However, these individuals also must answer all the suitability questions asked on the PTIN application, such as whether they have been convicted of a felony in the previous 10 years.

Also on September 21, 2011, the IRS published proposed regulations (REG-116284-11) that would establish user fees for fingerprinting and taking the competency examination. 

As proposed, the IRS portion of the fingerprinting fee would be $33, and the IRS portion of the testing fee would be $27. These user fees are in addition to any fees charged by the third-party vendors administering the programs. The fees to be charged by third-party vendors are not being announced at this time, but the total fees, including the IRS user fees, are expected to be between $60 and $90 for fingerprinting and $100 and $125 for testing.

For IRS guidance regarding its PTIN program, visit www.IRS.gov/ptin.  You can watch an introductory video here (01/11).

2010 Decedent Estates Granted Federal Filing & Payment Relief

The IRS has relented on next week's (September 19th) earliest filing and payment deadlines for some 2010 estates, otherwise anticipated by Section 301(d) of the Tax Relief Act and enforced by the IRS' prior Notice 2011-66, released on August 5, 2011.

That Act states that for decedents who died after December 31, 2009, and before December 17, 2010, the time for filing the estate tax return and the payment of estate tax “shall not be earlier than the date which is 9 months after the date of the enactment of this Act.” Thus, the earliest due date could be September 19, 2011, depending upon the date of death.

The new taxpayer (and tax preparer) relief is described in a September 13, 2011 Press Release, which appeared online today on the IRS Newsroom:

IRS Offers Filing and Penalty Relief for 2010 Estates; Basis Form Now Due Jan. 17; Extension to March Available for Estate Tax Returns

IR-2011-91, Sept. 13, 2011 — The IRS announced that large estates of people who died in 2010 will have until early next year to file various returns and pay any estate taxes due.

This is the brief, complete text of that Press Release, with links:

The Internal Revenue Service announced today that large estates of people who died in 2010 will have until early next year to file various required returns and pay any estate taxes due. In addition, the IRS is providing penalty relief to certain beneficiaries of these estates on their 2010 federal income tax returns.

This relief is designed to give large estates, normally those over $5 million, more time to comply with key tax law changes enacted late last year. Revised versions of the estate tax forms are now available on IRS.gov, and the carryover basis form will be released this fall.

The IRS is providing the following relief:

• Large estates, opting out of the estate tax, now will have until Tuesday, Jan. 17, 2012, to file Form 8939. This special carryover basis form, required of estates making this choice, was previously due on Nov. 15, 2011. Because this is a change in the specified due date rather than an extension, no statement or form needs to be filed with the IRS to have this new due date apply.

• 2010 estates that request an extension on Form 4768 will have until March 2012 to file their estate tax returns and pay any estate tax due. Normally, a six-month filing extension is automatically granted to estates filing this form, but extensions of time to pay are granted only for good cause. As a result, most 2010 estates that timely file Form 4768 will have until Monday, March 19, 2012 to file Form 706 or Form 706-NA. For estates of those dying late in 2010 (after Dec. 16, 2010 and before Jan. 1, 2011), the due date is 15 months after the date of death. No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date.

• Special penalty relief is provided to many individuals, estates and trusts that already filed a 2010 federal income tax return, or obtained an extension and plan to file by the Oct. 17, 2011 extended due date. Late-payment and negligence penalty relief applies to persons inheriting property from a decedent dying in 2010, who then sells the property in 2010 but improperly reports gain or loss because they did not know whether the estate made the carryover basis election. Details are in Notice 2011-76, posted today on IRS.gov.

Revised IRS 706 Form Released

On September 8, 2011, the IRS released its long-awaited, really final Form 706 United States Estate (and Generation Skipping Transfer) Tax Return (PDF 2.52 MB, 28 pages) for decedents dying in 2010, along with revised (July 2011) Instructions (PDF 441K, 48 pages).  The Form 706 is in a fillable PDF format that applies to decedents who died in 2010.

Why is this the "really" final form?  Because the IRS issued an initial July 2011 form on September 3, 2011, then revised it somewhat, and reissued it again on September 8, 2011.  See:  Estate Taxes Are Back! Are You Prepared? (09/12/11) by Julie Garber, posted on the Wills & Estates section of About.com.

Vince Lackner, of The Lackner Group, explained at least some of the errors made in the initial version:

The IRS released the final version of the 706 for 2010 at 1:05 am this past Saturday morning (September 3, 2011). This version of the 706 is included in the current 6-in-1 [software] update. * * * 

Yesterday we brought two issues to the attention of the IRS. As a result, it will be re-posting the 706 within the next 12 hours:

    (1) The "penalties of perjury" statement at the bottom of Page 1 should not have the second sentence ("...property...situated in the United States"). This was evidently a copy/paste from the 706-NA, and will be removed by the IRS. We contemplated this change in the update currently posted on our website. * * *

    (2) Schedule F (Question #1 at the top) should no longer have a reference to "collections whose artistic or collectible value combined at date of death exceeded $10,000." There appears to have been no statutory or regulatory authority for this additional reporting threshold (Reg. 20.2031-6(b)). This reference was removed from the instructions for Schedule F, but inadvertently left on Schedule F itself. * * *

The "What's New" section of the July 2011 revised Instructions summarizes the updates from the prior form:

• Use this revision of Form 706 only for the estates of decedents dying in calendar year 2010.

• The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Act) included several provisions affecting the 2010 Form 706. They are:
• a. Executors of estates of decedents who died in 2010 may make a special election to apply modified carryover basis treatment (within the meaning of section 1022) under section 301 of the Act. If the special election is made, the estate will not be subject to federal estate tax and Form 706 should not be filed. See Notice 2011-66, 2011-35 I.R.B. 184 (http://www.irs.gov/pub/irs-irbs/ irb11-35.pdf) and Form 8939 and its instructions for further information on the time and manner of making the special election.
• b. For decedents dying between January 1, 2010, and December 16, 2010, the due date for Form 706 is September 19, 2011.
• c. The applicable exclusion amount is $5,000,000 (a credit equivalent of $1,730,800).
• d. The maximum estate tax rate is 35%.
• e. The applicable rate for generation-skipping transfers is zero.
• f. Prior gifts must be calculated at the rate in effect at the decedent’s date of death.

• Various dollar amounts and limitations relevant to Form 706 are indexed for inflation. For decedents dying in 2010, the following amounts are applicable:
• a. The ceiling on special-use valuation is $1,000,000.
• b. The amount used in computing the 2% portion of estate tax payable in installments is $1,340,000. The IRS will publish amounts for future years in annual revenue procedures.

• Executors must provide documentation of their status.

The need for the 706 form to be revised in compliance with applicable law and in advance of a firm upcoming deadline, is explained in Alert: IRS Releases Final Form 706 and Instructions With Respect to 2010 Deaths (09/09/11), by Kerry L. Spindler, Esq,of Goulston & Storrs, PC, posted by the Boston Bar Association Trusts & Estates Section:

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was to have repealed the federal estate tax for decedents dying in 2010 and replace the step-up in basis traditionally available to property transferred at death with a modified carry-over basis regime.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA) restored the federal estate tax for 2010 decedents, subject to a $5M federal estate tax exemption amount and a 35% maximum federal estate tax rate, and also restored the step-up in basis rules.

This notwithstanding, TRA § 301(c) permits the executor or administrator of a 2010 estate to elect into EGTRRA’s zero estate tax/modified carry-over basis rules. This election (a § 1022 Election) will be made on a timely filed Form 8939 (see IRS Notice 2011-66).

This Form 706 is to be used only with respect to decedents who died during calendar year 2010 where the executor or administrator is not making a § 1022 Election. * * *

An excellent summary regarding the new form and its crucial filing deadline was posted by the Journal of Accountancy in Estate Tax Form, Instructions Finalized for 2010; Due Sept. 19 (09/08/11).

The American Institute of Certified Public Accountants, in its August 8, 2011 letter to the Department of the Treasury and the IRS (Doc, 4 pages, with links to sources), has requested extension of, or relief from, the looming deadlines for filing and tax payment, which could occur as early as September 19, 2011.

Update: 2011-09-13:

The IRS has granted relief in application of filing and payment deadlines.  See: PA EE&F Law Blog posting 2010 Decedent Estates Granted Federal Filing & Payment Relief (09/13/2011).

One Paper Size Fits All Pa Inheritance Tax Returns

Effective April 1, 2011 any REV-1500 (PA Resident Inheritance Tax Return), including attachments, submitted to the Pennsylvania Inheritance Tax Division in a format size other than 8½ x 11 will be rejected by the Department of Revenue, which will equate to a non-filing.

Pursuant to a Notice entitled REV-1500 Formatting Limitations to 8½” X 11”  issued by the Pennsylvania Department of Revenue, Inheritance Tax Division, and referenced by the Registers of Wills in at least two Pennsylvania Counties -- Center County (Inheritance Tax Return Formatting Limitation to 8 1/2" X 11") and Chester County (Inheritance Tax Returns REV 1500 Required Formatting) -- returns not filed on standard letter-sized (8½” X 11”) paper will be rejected.

Rejection (read, "non-filing") will occur because such a filing would "not conform" to the Pennsylvania Inheritance and Estate Tax Act of 1991, 72 P.S. §9136, and the Department's requirements.  That Section provides:

§ 9136.  Returns.  

(a) The following persons shall make a return: * * *

(c) Any person required to file a return under subsection (a) shall promptly file a
supplemental return with respect to additional assets and transfers which come to his knowledge after the original return has been filed. * * *

(e) The returns required by subsections (a) and (c) shall be made in the form prescribed by the department.

The Notice explains why the new limitation will be enforced.

Historically, the Department has manually reduced the size of any 8½” x 14” REV-1500 by coping them onto 8½” x 11” paper.  The copies do not image correctly and the loss of division personnel has required us to input this new procedure.

The REV-1500 is in an official format of 8½” x 11”. The Department will return the forms to the local Register of Wills’ office and note on the inheritance tax system that the forms were returned to the Register’s office as the form did not fit the standard format. * * *

However, there was a phase-in period for the change, which began on April 1, 2011, but will expire on June 30, 2011.

The Department has recommend to the Register of Wills’ office personnel to immediately inform estate return preparers when they bring a REV-1500 to their office printed on any format that is not 8½” x 11” that the Register’s office will reject the REV-1500 to be forwarded to the Department for processing and advise the preparer of the correct procedures.

As a representative of the PA Department of Revenue, Inheritance Tax Division, the county Register of Wills office does have the authority to refuse any form that does not qualify as an accepted form for processing under the above noted section.

From April 1, 2011 [until] June 30, 2011, the Department will inform the estate representative that the forms were sent back to the Register’s offices as a result of incorrect formatting. The estate representative will be required to deliver to the Register a revised REV-1500 formatted correctly and pay any additional filing fee as required.

After June 30, 2011, the Department will discontinue informing the estate representative of their error.

The effort to standardize paper sizes has a long history.  In the legal world, paper sizes have been determined as much by the two standard filing cabinet sizes as anything else.  But now technology, with its scanning processes and computer monitor viewing, drives paper standardization.  Aberrant paper sizes will not be accommodated any longer, due to additional processing costs incurred to fit the systems.

So, when it comes to the filing of Inheritance Tax Returns in Pennsylvania after June 30, 2011, one size shall fit all.

Update: 11/02/11:

For those seeking an overview of, or online resources about, Pennsylvania Inheritance and Estate Taxes, see: PA EE&F Law Blog posting PA Inheritance Tax Summarized (11/02/11).

PA DoR Revised Safe Deposit Box Entry

The Pennsylvania Department of Revenue has loosened restrictions as to who may inventory a safe deposit box in which a decedent had an interest.

By its Inheritance Tax Bulletin 2011-02, entitled Safe Deposit Box Inventories and Notice, issued May 11, 2011, PA DoR announced its modification, effective on that date, of "the procedures under which estate representatives may enter the safe deposit box of a decedent" pursuant to the the provisions of the Inheritance and Estate Tax Act of 1991 (the 'Act')."

The general rule regarding entry into a safe deposit box of a decedent is stated in 93 Pa. Code § 93.11 ("Limitation of entry by statute or regulation"), as follows:

No person seeking entry otherwise prohibited by the act, having actual knowledge of the death of a decedent may enter a safe deposit box of the decedent unless the entry is made under * * * [the Act] and no person acting as deputy, agent or in a similar capacity may enter a safe deposit box except as provided in this subchapter.

Subchapter B of those Regulations specifies the parameters of access, inventory, removal of contents, and reporting of values, regarding a decedent's safe deposit box.  Those regulations address:

• Definitions & Duties generally (93.21 & 93.22);

• Permission to Enter a Box Without Notice to the Department ( 93.31, 93.32, 93.33, 93.34, 93.35, 93.36, & 93.37 ) where a bank, Department representative, court, or business is involved or where a last will or cemetary deed is sought;

• Entry upon Notice to the Department (93.41, 93.42, & 93.43);

• Subsequent entries (93.51);

• Confidential information (93.61); and

• Penalties (93.71, 93.72, & 93.73).

Approximately twenty years ago and before, only PA DoR representatives could open and inventory a safe deposit box after an owner's death. Then the Department relented, and allowed, first banks, and later attorneys or accountants, to perform an inventory at an intial post-motem opening and then report to PA DoR.

With the issuance of this latest bulletin, a personal representative need not be accompanied by a Revenue representative, a bank employee, a lawyer, or an accountant, to inventory a safe deposit box:

[N]either a department or bank employee, nor lawyer or CPA must be present at a safe deposit box inventory. Instead, pursuant to the Act, a safe deposit box of a decedent may be entered at the time fixed in a notice mailed within seven days of the date of proposed entry, to the Department of Revenue and to the financial institution in which the box is located. 72 P.S. § 9193. The department no longer will provide employees to be present at safe deposit box inventories.

The procedures for those authorized by law to access a decedent's safe deposit box remain the same:

The Act requires that notice of a proposed safe deposit box entry and inventory must be delivered to the department via United States Postal Service with return receipt service.

The Act allows that, when a person furnishes a signed statement under penalty of perjury that he or someone in his behalf has given this notice, the financial institution in which a safe deposit box of a decedent is located shall permit entry into the box and removal of its contents, without the presence of a department or bank employee.

(1) The Notice must include:
a. the name of estate and person entering the box,
b. the name and street address of the financial institution in which the box is located, and
c. the date and time of entry.

(2) The Notice must be:
a. delivered via United States Postal Service, return receipt service
b. copied to the financial institution in which the box is located
c. sent at least seven days in advance to:

PA Dept of Revenue
Safe Deposit Box Unit
P.O. Box 280601
Harrisburg, PA 17128-0601

The Department's bulletin was announced in its Tax Update, April/May 2011 (Issue No. 155), on pages 5 & 6, which provided a further explanation:

At the time of entry, the estate representative must also provide a statement to the financial institution attesting the notice was sent to the department, with the following or similar language:

Under penalties of perjury I swear that I gave the notice required under Section 2193 of the Inheritance and Estate Tax Act, 72 PS § 9193, to the Pennsylvania Department of Revenue, via United States Postal Service, of my intention to enter this safe deposit box on today’s date.

Within 20 days of entry, the estate representative must also return a completed Safe Deposit Box Inventory form, REV-485, to the department’s Safe Deposit Box Unit.

That inventory reporting form, REV-485 ("Safe Deposit Box Inventory"), revised May, 2004, is available online.

This new Bulletin will require updating of the Department's Brochure on Pennsylvania Inheritance Tax & Safety Deposit Boxes (REV-584).