Act 79 & Act 84

July 20, 2016

Download Act 84

Download Act 79

To new Acts of significance to estate and trust practitioners –

1. Act 84 – courtesy of Robert Clofine and Dan Evans, who posted an update on the PA ACTEC list served today. I will copy Dan Evans's comments as they may be helpful to you if you don't feel like slugging through the attached 159 pages or thereabouts. I assume Dan won't mind since he already publicly made the comments on the list serve:

"I found the following changes to the inheritance tax exemptions for agricultural property and family-owned businesses, sections 2111(s), (s.1) and (t) of the Tax Reform Code of 1971, 72 P.S. §§ 9111(s), (s.1), and (t):

  • Language has been amended or added to extend the exemptions to transfers in trust for the benefit of family members.
  • To be exempt from inheritance tax, property devoted to the business of agriculture must produce a gross income of at least $2,000, both at the time of death and for seven years afterwards.
  • Property devoted to the business of agriculture, or agricultural easements or reserves, must be reported on a timely filed inheritance tax return. (The requirement of a timely return already applied to the exemption for family-owned businesses.)
  • The exemption for family-owned businesses now refers to "members of the same family" and the definition of "qualified transferee" has been deleted.
  • In the event property ceases to be exempt, the beneficiaries of a trust that is the owner of the property are liable for any tax that may be imposed, and all liability is joint and several.
  • Expenses and debts incurred in connection with exempt property are not deductible.

Daniel B. Evans" For the rigorous among you I have attached the whole Bill.

2. Act 79 – formally Senate Bill 1104. This is an omnibus bill affecting many parts of chapter 20. I have attached the bill in full and would recommend it to your reading. It is shorter – only 46 pages and much of it will be of interest to you. Perhaps the most significant changes the addition of Chapter 76 on powers of appointment. This is a new chapter born of the fact that the law with regards to powers of appointment in Pennsylvania was very difficult to find – essentially all by case law. This is an attempt to put it all in one place. No doubt many of you will be surprised by some of the provisions, and that may be because you really didn't know what the case law was to begin with especially concerning the exercise of powers of appointment. There are some significant differences between this chapter and the Uniform Act which was adopted I believe about a year ago. In attempting to distinguish the intent of the grantor of the power of appointment, there is a distinction both in the uniform act and also in the Restatement between a general power of appointment and a special power of appointment. In both of those sources they make the distinction based on section 2041 of the Internal Revenue Code. In other words a power is a general power if the donee of the power has the ability to appoint it to the donee, the donee's creditors, the donee's estate, or the creditors of the donee's estate. This wasn't really very limiting if we wanted to give the donee of the power lots of freedom – we just draft the documents so that they could give it to anyone other than those four. So if we wanted to give the donee full freedom and really one of the donee's intent to control, we gave in that power other than to give it to the "donee, the donee's creditors, the donee's estate, or the creditors of the donee's estate". This would indicate lots of confidence in the donee and how the donee would exercise that power but an aversion to the federal estate tax. Conversely, if we were to draft a power of appointment that would only allow the donee of the power to appoint it to the creditors of her estate, what that really meant was that we had essentially no confidence in the donee of the power, but we wanted to avoid generation-skipping transfer tax. Unfortunately the uniform act and the Restatement use this definition to determine whether the donor of the power would want us to look to the donee's indication of intent, rather than going back to the donor's instrument. This didn't make sense, so we instead created a distinction based upon a determination of whether the power of appointment was a "broad" power of appointment or a "limited" power of appointment. If you look at the definitions, I you will find it more rational to make the distinction this way than piggyback it on the Federal tax distinction which like many things in the tax law – doesn't really make any sense.

That's all the time I have for now so have fun if you haven't already seen these new Acts.

Best regards,

Bob Wolf, Moderator, P & T Hot Tip Email Listp Email List

Tener, Van Kirk, Wolf & Moore, P.C.

One Oxford Centre, Suite 2100

301 Grant Street

Pittsburgh, PA 15219

(412) 281-5580

Fax (412) 281-6115

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