J. Michael Young blogs about a change of beneficiary designation when the decedent lacked sufficient mental capacity or was the victim of undue influence. He provides an excellent discussion of In re Estate of Wallis in this post.
The Pennsylvania Superior Court is reversed! No surprise. (See our prior posts here and here.) Read the Supreme Court's decision here.
Common sense prevailed. Joint accounts are rehabilitated. The joint account result is correct and good. However, in this particular case, the appellants missed the boat. This really should have been a case on the appropriateness of the agent under a POA's actions. Too bad those weren't the issues on appeal. I wonder if its too late to go back?
Here are some highligts from the opinion:
"There is no statutory provision giving a will primacy over the right of survivorship
presumed by Section 6304(a), nor does anything in the MPAA or the PEF Code support the
Superior Court’s path of interpretation. Indeed, the MPAA clearly evinces a legislative
intent that joint accounts are to be generally governed and interpreted separate and apart
from provisions governing wills."
"We do not hold that provisions of a will, in the appropriate case and in conjunction
with other relevant evidence, are beyond consideration as “clear and convincing evidence”
of intent different from a right to survivorship “at the time [a joint] account is created.”
However, the Superior Court’s conclusion that such clear and convincing evidence exists
simply when a court determines that the provisions of a pre-existing will indicate a
distribution scheme in conflict with one under a co-existing joint account is not supportable
under a plain reading of the MPAA or otherwise."
"We understand Appellee’s disappointment, and we note the orphans’ court and
Superior Court’s apparent discomfort with the master’s conclusion that the proceeds of the
Treasury Direct account, representing the bulk of Decedent’s substantial property,
belonged to Appellant rather than to the estate.
"Amnesty
(from the Greek amnestia, oblivion) is a legislative or executive act by which a state restores those who may have been guilty of an offense against it to the positions of innocent people. It includes more than pardon, in as much as it obliterates all legal remembrance of the offense. The word has the same root as amnesia."
– Wikipedia
The Pennsylvania legislature has authorized a tax amnesty period from April 26 to June 18, 2010. During this limited, 54-day time frame, the Pennsylvania Department of Revenue will waive 100% of penalties and half of the interest for anyone who pays his or her delinquent state taxes.
Any PA taxes delinquent as of June 30, 2009, and any non-filed PA returns overdue as of June 30, 2009, are eligible for tax amnesty. Individuals and businesses are included.
All taxes administered by the PA Department of Revenue are eligible for the tax amnesty program. There are many state taxes. Here are a few: Personal Income Tax, Inheritance Tax, Capital Stock Tax, Sales and Use Tax, Corporate Net Income Tax. The tax amnesty does not include Unemployment Compensation because it is administered by the PA Department of Labor and Industry. The program does not apply to any tax administered by another state, the federal government or Internal Revenue Service.
To obtain tax amnesty, you must do the following between April 26 and June 18, 2010:
file an amnesty return online with the PA Department of Revenue (taxpayers will only be able to apply online; no paper application will be available);
file tax returns for periods for which returns were not filed, or file amended returns for all underreported tax; and
pay all delinquent taxes plus 50 percent of the interest due with the amnesty return that is filed.
No extensions to file or to pay are available. Penalty and interest paid before the tax amnesty program begins are non-refundable.
If you are reporting and paying taxes which are completely unknown to the Department – meaning you have not registered, filed or paid the state taxes, nor have you been contacted by the department about the taxes - you could qualify for a limited filing period. In this case, only undisclosed tax delinquencies dating back to July 1, 2004, will be required to be filed and paid under the amnesty program.
If you are reporting and paying taxes which are known to the department, you must file tax returns or amended returns for all tax periods and pay all taxes due to the department.
Taxpayers with known delinquencies will receive notices from the DOR informing them about the amnesty program. The notice will include a Personal Identification Number (PIN) to be used in the application process. For delinquencies that the department does not know about, taxpayers will have to register and get a PIN online in order to file.
A business or individual currently under criminal investigation for violation of a tax law, or named as a defendant in a criminal complaint alleging a violation of a PA tax law is not eligible to participate in the amnesty.
After the amnesty period closes, a 5% non-participation penalty will be imposed on all un-paid tax, penalty and interest not paid in full during the amnesty period. Existing deferred payment plans, active appeals and entities in bankruptcy will not be assessed the additional 5% penalty.
In addition, if within two years after the end of the program a taxpayer that is granted amnesty becomes delinquent for certain periods in payment of any taxes that are due or in the filing of any required returns, the Department of Revenue may assess and collect all penalties and interest waived through the amnesty program.
You only get one shot at Pennsylvania tax amnesty. If another Amnesty Program is held in the future, a taxpayer participating in the 2010 Amnesty Program will be prohibited from participating in future Amnesty Programs.
The amnesty is projected to generate an additional $190 million for the state to help offset spending in the fiscal year that began July 1, 2009. Last year New Jersey had a hugely successful amnesty program which collected $725 million in six weeks.
Pennsylvania’s last tax amnesty was 14 years ago. The 1995-96 amnesty waived penalties but required full payment of taxes and interest. This year’s amnesty is better. It will waive penalties and 50% of the interest. The extra incentive for taxpayers previously unknown to state officials to come forward is that they will not be held responsible for taxes due before July 2004. The theory is that they will have to supply the department with the information it needs to tax them in the future.
While there is no question that tax amnesties work, it can provide a negative incentive to tax payers. As Kail Padgitt of The Tax Foundation in Washington D.C. says a tax amnesty is essentially "rewarding people that have not paid their taxes and have been out of compliance. So really what it does is it provides a perverse incentive to not pay your taxes."
How many families do you know who fought over the settlement of their Mom and Dad’s estate? In my experience, these family feuds are often over things - not money. Who gets the sterling flatware and who gets the drop-leaf table are points of contention that rip apart the family fabric.
Mom and Dad, why on earth do you think that children who fought over who gets the last cookie and, as recently as last week, fought over who gets to stay in the beach house the third week in August will somehow miraculously change when you die? I have news for you. When you’re gone, they will fight worse than ever. Face up to it now.
Even in estates where there are no tax issues - let’s say the total value of the estate is less than $3.5 million - disputes over personal property can cause permanent schisms. Each child wants the teapot that was the center of every family dinner and embodiment of all memories of childhood love. The executor has to decide who gets it. What a job that is! The only way for an executor to escape with his skin is often to sell the piece - then everyone can be equally angry.
If tempers can flare over items of sentimental value, watch out when the monetary value of the disputed items rises or when the estate exceeds the federal exemption for estate tax.
Mom and Dad, don’t bring this problem on yourselves. You may have heard at bridge club that you shouldn’t mention these things in the will because then your heirs have to pay tax on them. Even worse, some estate planners might tell you that too. This is wrong. A decedent’s property owned at death is subject to estate and inheritance tax. It doesn’t matter whether the property is specifically mentioned in the will. What these "advisors" really mean is that if it isn’t mentioned in the will, it’s easier to cheat on the taxes by omitting to report the item. This is tax fraud, pure and simple. The same tax is due on a $10,000 bank account as on a $10,000 oriental rug, and it is absolutely fair and just that it be so.
Tempers may also rise when you or your Executor low-ball the value of valuable items, asking for "low" appraisals for "estate tax purposes" to try to reduce taxes. Then the property is divided up among the children using the appraised value. Surprise, surprise -- a child sells the breakfront that was part of his share for double the appraised value and his siblings call foul.
The IRS is not as dumb as you think. Most people who have valuable collectibles - jewelry, artwork, antiques - realize that they must be insured. Your average homeowners insurance policy doesn’t cover the loss of these items unless they are separately listed and valued. If you don’t report the jewelry all the IRS has to ask for is a copy of the homeowner’s policy. The IRS knows that if you live in a $300,000 house, have three expensive cars, belong to the Country Club and have a winter place in Florida then your household furnishings are worth more than a couple of thousand dollars.
If you’re afraid to talk to your kids about it, how do you think your executor (who may be one of the kids) is going to feel about it? The best thing you can do is make list of items, and who should receive them. Allow your children to have input. You be the one to settle the disputes. Then make the list part of your will or at least make it a non-binding memorandum, mentioned in your will.
If you can’t bear to talk about it, at least put a mechanism in your will for the division of the property. Maybe each child selects items in rotation. Who gets first choice is determined by lot.
Keep this in mind too: putting someone’s name on an item with a tag is legally meaningless. All property is passed under the will or under the intestacy statute if there is no will. It doesn’t matter if "Mom promised it to me" or if "Dad told me it would be mine." If all the other beneficiaries agree, you may be ok. But if there is any dispute, such oral representation, tags, notes, and letters are completely without any legal effect.
Also, there are the people who say "Grandma gave it to me years ago, I just left it in her house until she died." Even if this is true, the IRS takes the view, that this is not a completed gift. A completed gift of personal property, like a corner cupboard, requires delivery. How can you prove delivery in this instance? Even if you can prove delivery by some ingenious means, to the IRS, it still looks like a transfer with a retained right to the use of the property for life and is still subject to tax in the estate.
If you have a $40,000 grand piano, by all means, dispose of it in your will. If you want your daughter to have it, bequeath it to her. The best gift you can give to your beneficiaries is to make a clear and incontestable disposition of all your property, including jewelry, furniture, collectibles and artwork. The last thing you want to bequeath to your children is a battle that will drive them away from mutually supporting each other.
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