Effective for decedents dying after July 9, 2013, there is a new inheritance tax exemption for qualified family-owned businesses. The law provides: "A transfer of a qualified family-owned business interest to one or more transferees is exempt from inheritance tax, if the qualified family-owned business interest . . . .continues to be owned by a qualified transferee for a minimum of seven years after the decedent's date of death."
Part III of this series on the Pennsylvania inheritance tax deals with the taxation of future interests, the sole use trust election, the family exemption and the early payment discount.
Inheritance Tax Treatment of Gifts
Pennsylvania has an inheritance tax which is an excise tax on the receipt of inherited property by a beneficiary.
It's time for the snow birds to think about their migration to Florida and other parts south. Man folks make a great deal out of staying for exactly 6 months and a day. They think that being in a state for more than half the year makes them domiciled in the state. Maybe yes, but maybe no. It depends.
Life insurance and retirement plans compose the largest part of the estate for many people. Insurance death benefits, IRAs, Annuities, and 401(k)s do not pass under your will. They pass under contract law to those persons or organizations who are designated as the beneficiary.
You have probably heard that a safe deposit box is "sealed" when the owner dies. This is not true in Pennsylvania. Safe deposit boxes are not sealed. In fact, the box is the safest place for your will, life insurance policies, stock certificates, and other valuables. Far from being sealed, the box is opened, following proper procedures, to search for documents that are needed at the time of death.
In anticipation of a government shutdown, the Treasury Department announced on September 27 procedures for the IRS and other agencies under its jurisdiction in the event of a government shutdown after the end of fiscal year (FY) 2013. Only 9 percent of the IRS's personnel are allowed to work.
Teddy Roosevelt used to be called the Trust-Buster because he forced the great railroad combination in the Northwest to break apart. He was the avowed foe of all sorts of trusts and monopolies.
A power of attorney (POA) is a standard part of every estate plan. In this document the client appoints an agent to take care of the principal's finances, bills, investments, taxes and other financial matters.
It used to be that the authority of an agent acting under a power of attorney was not questioned. Now, prosecutors and elder-law attorneys say that the number of cases where adult children using a power of attorney are stealing money from parents' accounts is rising. More than ever before, powers of attorney are being used in "swindles." That is making banks and other financial institutions reluctant to rely on the power of attorney.
Banks sometimes refuse to execute transactions ordered by an agent under a power of attorney because they are afraid of being parties to a fraud. There are ways to bulletproof these legal documents to improve the chances that banks will honor them-and that loved ones won't misuse them. But it takes careful planning.
Power-of-attorney abuse garnered national attention after the 2007 indictment of philanthropist Brooke Astor's son for trying to "unjustly enrich" himself. The son was convicted in 2009 of grand larceny, among other counts, for using a power of attorney to increase his own salary, ultimately siphoning more than $1 million from his mother. He is appealing the verdict.
Some financial institutions will only honor powers of attorney created using their internal forms. This is a real problem if the principal is incapacitated and the agent needs to take action on his or her behalf. Some states, including Pennsylvania, have enacted laws to allow those whose valid POAs are not respected by third parties to recover attorney's fees and damages. But what we want is not the ability to bring a law suit---what we want is for properly executed powers of attorney to be honored.
Sometimes banks and other financial institutions, such as brokerage houses and insurance companies, refuse to honor a power of attorney when they think the document is "stale," that is, a significant amount of time has passed since the POA was executed. This refusal means that an agent may have a useless document if it was executed a decade or two prior. This is not a "legal" reason, but it is a policy adopted by many financial institutions. In real estate transactions, buyers, their attorneys and title companies may choose not recognize a power of attorney if it was not filed or recorded with the recorder of deeds in a timely matter. If the power of attorney document designates only one agent and that agent is either incompetent or deceased, then the document is of no use.
Sometimes a strongly worded "lawyer letter" threatening a lawsuit addressed to the financial institution can be successful in getting them to honor the instructions of an agent under a power of attorney. Sometimes, what I call the Khrushchev approach, where the lawyer yells and pounds on the desk with her shoe, gets the desired result.
If you cannot get the third party, usually a financial institution, to honor the power of attorney, what can you do? The only thing you can do is seek to have a guardian appointed for the principal---a court procedure that is costly and cumbersome and which the durable power of attorney was intended to avoid.
Regulators and legislators are looking for a solution to these problems. There must be a way for loved ones and trusted agents to take care of a principal's financial affairs without court supervision. But at the same time, there need to be safeguards against abuse. State law in New York, for example, now allows principals to name outside monitors in their power-of-attorney documents. The appointed agents must provide regular accounting reports to the monitors.
All of these things are good examples of why it is so important to update one's estate plan regularly. Ideally, powers of attorney should not be more than five years old. An estate planning attorney will also review the important options of designating primary and secondary agents so that an individual's careful advanced planning will be valid when they need it most.