Pennsylvania Trusts and Estates Blog

Pop singer Britney Spears married her childhood sweetheart, Jason Alexander, at the Little White Wedding Chapel in Las Vegas Saturday morning January 3, 2004 at 5:30 AM. She was escorted down the aisle by a hotel bellman. The bride wore jeans and a baseball hat. 55 hours later, on Monday morning at about 10:00 AM, Britney's attorney filed a petition for annulment of the marriage. A few hours later it was granted. Britney married Kevin Federline nine months later on September 2004.

The petition for annulment said Britney "lacked understanding of her actions to the extent that she was incapable of agreeing to the marriage." Reasons given included: "Before entering into the marriage the plaintiff and defendant did not know each other's likes and dislikes, each other's desires to have or not have children, and each other's desires as to state of residency. . .Upon learning of each other's desires, they are so incompatible that there was a want of understanding of each other's actions in entering into this marriage."

An annulment is a ruling by the court that puts aside a marriage as though it never existed. Technically, an annulment refers only to making a voidable marriage null; if the marriage is void from the start, such as in the case of bigamy, then it is automatically null, although a legal declaration of nullity is required to establish this.

In Pennsylvania, invalid marriages include situations such as when either party had an existing spouse at the time of the marriage, when the parties are blood relatives within a certain degree, or when either party could not consent because of a mental defect or other related reason. These marriages are void without an annulment and their status can be established by a legal declaration of nullity.

Other marriages may be declared void by Pennsylvania courts and an annulment granted if 1) the spouses are less than 16 years of age and lack the consent of a parent or the court to marry, 2) where either party was under the influence of drugs or alcohol, 3) when either party was at the time of the marriage incurably impotent or 4) either party entered into the marriage as a result of fraud, duress, coercion, or force.

The rationale for granting an annulment is that marriage is a contract, and if either individual was unable to enter into the contract, the court may determine that no contract of marriage ever existed. After an annulment, the spouses have no right to inherit, one from the other, and no right to be supported.

Children born to or adopted within a marriage that is later annulled are legitimate children. They have the right to financial support from both parents and to get property at the death of either parent regardless of whether the parents' marriage was valid.

Many people mistakenly believe that annulments are common for short marriages, and that it is a proceeding that is easier and less expensive than divorce. Actually, an annulment is more complicated than divorce because it must be established that the marriage was entered into improperly; the parties can't just consent to an annulment. An annulment is sought in order to nullify the marriage and return the parties to their prior single status, as if they never married. Establishing the grounds for an annulment is difficult. Many Pennsylvania lawyers advise clients to file for divorce and avoid the difficulties.

There is a tax result, also, to be considered. If your marriage is annulled by court decree, and you are thus treated as if no marriage ever existed, then for federal income tax purposes you are considered unmarried even if you filed joint returns for earlier years. According to an IRS ruling, if an annulment is retroactive, you were never married and have no right to file joint returns. You must file amended returns claiming either single or head of household status for all tax years affected by the annulment that are not closed by the statute of limitations for filing a tax return. The statute of limitations generally does not expire until 3 years after your original return was filed.

An annulment granted through a church or other religious entity is not the same as a legal annulment. The courts consider marriage as a contract, not as a church sacrament. Only a legal annulment or divorce gives the parties the legal right to remarry according to the law in the United States. Religious annulment gives the parties the right to remarry through their religious organization.

While other denominations have annulments, one usually hears of them in the context of the Catholic Church where marriage is believed to be indissoluble. However, a person who is divorced may petition the Church to review the marriage and investigate whether a full, free-willed consent was exchanged at the time of the wedding. The Church uses the same rationale as the civil law. The annulment process is not a method to dissolve a marriage but rather to determine whether a marriage was valid. In the Jewish religion, marriages can be annulled but very rarely is it done.

A religious marriage or annulment has no effect on the civil status of the marriage. Similarly, a civil annulment has no effect in religious law.

"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice." -- Aristotle

If you have your income tax return filed at a paid professional tax preparation service, and your tax return shows a refund; you will probably be offered a refund anticipation loan. Just say "no."

Refund anticipation loans ("RALs") are extremely high-cost bank loans secured by the taxpayer's expected refund -- loans that last until the actual IRS refund repays the loan. RALs are aggressively marketed by income-tax preparation companies. They advertise "Instant Refunds" or "Quick Cash" for their cash-strapped customers who need money in a hurry, and disguise the fact that they are selling advance loans on anticipated tax refunds.

How does a RAL work? Additional fees are charged by the tax preparation service to arrange a short-term bank loan for the taxpayer and to open a bank account. The bank who makes the loan charges finance charges. Your refund is paid to the bank to pay off the loan.

But you can get your refund almost as quickly without any fees or interest charges. If you e-file your taxes with the IRS and have your money deposited directly into your bank account, you can generally get your refund in fewer than ten days. There's no fee for e-filing, and you don't have to pay any interest. The IRS began accepting e-filed tax returns for 2009 on January 15.

Kimberly Lankford reported in Kiplinger's Personal Finance that the effective annual percentage rate for refund-anticipation loans can range from about 50% (for a $10,000 loan) up to nearly 500% (for a $300 loan) when you include interest charges and refund account fees.

Here is an example from Kelley Philips Erb's article for walletpop.com: Taxpayer is expecting a refund of about $800. She goes to a franchise tax preparation service where she is charged $200 for return preparation. They offer her a RAL, telling her that without it she could wait up to 12 weeks to get her refund. (This is not true.) She paid a $75 processing fee, a $60 service fee, and $50 in bank fees. Combined with the $200 preparation fee, she paid nearly $385. Instead of getting $800 in 20 days, she got about $400 the next day. That's crazy.

Supporters of the practice say the loans allow people access to funds immediately in cases of an emergency such as overdue medical bills, credit payments, and other debts while they wait for the IRS to process their income tax return.

Opponents of RALs say that the profit motive of the lender results in RALs being issued too often to low-income individuals who are made to believe the wait for their refund is longer than it really is, who do not realize they are taking a loan, do not understand the high interest rates charged by the loan (often exceeding 100% APR), and who do not actually need the funds immediately. The Consumer Federation of America and the National Consumer Law Center, say that Refund Anticipation Loans are controversial because, like payday loans, RALs are high-profit, low-risk loans marketed to the working poor.

In 2002, H&R Block settled a lawsuit brought by the New York City Department of Consumer Affairs for predatory lending practices with regard to RALs and the Earned Income Tax Credit.
In 2006, the California Attorney General sued H&R Block over its refund anticipation loan business, citing effective annualized interest rates that exceeded 500%, including fees. The suit claimed H&R Block falsely portrayed the nature of the loans, advertising "cash, cold, green, in your hand, out the door."

The IRS is also concerned that RALs are linked to tax fraud. Since the fees for the RAL are linked to the amount of the refund, preparers are incented to inflate refund claims inappropriately. A 2006 Government Accountability Office investigation found inflated refunds for 6 out of 19 paid preparers they tested. Repeated sanctions were imposed against Jackson Hewitt for engaging in deceptive, misleading and even criminal conduct, including a $5 million settlement with the California Attorney General over false and deceptive marketing of RALs and a 2007 enforcement action by the U.S. Department of Justice against five Hewitt franchisees for engaging in a tax fraud schemes that falsely claimed $70 million in refunds.

If you decide to go ahead with a RAL, make sure you read the fine print and understand exactly what your are paying for what service. The loan is a private arrangement. It is not offered by or through the IRS. Be careful.

Where do you live? It depends.

Domicile is "the place where a man has his true, fixed and permanent home and principal establishment, to which whenever he is absent he has the intention of returning". A person can have only one domicile, no matter how many residences he owns.

Your state of domicile determines (1) to which state you pay state income taxes, (2) where your will is probated and where your estate will be administered (3) to which state your estate pays inheritance and estate taxes and (4) which state's laws govern the enforcement of judicial orders.

The state of domicile also determines spousal rights in property. Most of the states, like Pennsylvania, are common law states. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community property states. A move to any of these states requires special planning.

It is very possible for more than one state to claim that you are a domiciliary. When this happens all of the states that have claims can assess income tax and inheritance or estate tax. Some states are parties to agreements to resolve these issues as they affect death taxes, but many are not. The battle over Howard Hughes' estate went on for years, with Texas, Nevada and California all claiming him as a domiciliary. In perhaps the most famous estate tax domicile case, the estate of Mr. Dorrance, the founder of Campbell's Soup Company, was taxed by both Pennsylvania and New Jersey, in each case as if he was domiciled there. Each of Pennsylvania and New Jersey collected about $17 million. The U.S. Supreme Court upheld this result.

Since domicile depends on where you intend to return, it is a subjective concept. Nevertheless, many objective actions can give indications of your intention. There are lists available for actions that should be taken to give evidence of your intention to change your domicile. You don't have to do everything on the list. None of these things, except the requirement for physical presence in the new domicile, are absolute requirements. However, you have to do enough of them, especially the more significant ones, to convince the tax authorities that you have truly moved your domicile. Here are some actions that show intention to change domicile:

• Buy or lease property in the new domicile state, furnish it as a permanent residence, not a vacation place.
• Spend more than 183 days per year in the new state - this is the most important requirement. In some states this is an ironclad rule for tax purposes. For example, if you maintain a residence in New York and spend more than 183 days per year there, New York considers you a resident for tax purposes regardless of your intentions.
• Obtain a driver's license in the new state.
• Register your cars in the new state.
• Register to vote in the new state, and vote.
• Go to doctors, dentists, lawyers and other professionals in the new state and have your records moved from the old state to professionals in the new state.
• File your federal income tax return with the appropriate IRS service center and show your new state as your address.
• File a Declaration of Domicile if your new state has such a procedure.
• Move bank accounts and safe deposit boxes to the new state.
• Send notifications of a change of address to family, friends, business associates, professional organizations, credit card companies, brokers, and insurance companies
• Use the new state as a home base. When you travel, leave from and return to the new state.
• Keep your family heirlooms, furniture and keepsakes in the new state.
• Change legal documents to reflect residency in the new state.
• Update your estate plan and have your estate planning documents identify you as a resident of the new state.
• Join organizations such as clubs, religious groups and become active with local charities in the new state.
• Apply for a homestead in the new state if applicable.

Not only must you adopt a new domicile, but your old domicile must be abandoned. In your former state of domicile:

• Have your name removed from the voter registration list.
• Turn in your driver's license.
• Pay income tax as a non-resident if applicable.
• Mark your last state income tax return "FINAL" and use the new state's address.
• Spend as little time in the old state as possible.
• Close accounts in the old state.
• Change all club membership, religious and social affiliations to "non-resident" status.

Timing of the change in domicile can be important. If you sell your business or your home in the old state, where you are domiciled at the time of the sale can impact how the gains are taxed. If you are creating trusts, the "resident state" of the trust will often depend on your domicile at the time you create the trust. This means a trust could remain taxable in the old state even though you move your domicile to the new state.

If you stop filing taxes in your old state, this doesn't mean that they have no claim on you. Remember that if you don't file a return for a year, the statute of limitations never starts running. There is no limit to the number of years they can go back and assess tax. Consider filing a non-resident return.

Be consistent. If you want to be a Floridian to escape Pennsylvania income tax, don't register your car in Pennsylvania to get lower insurance rates. Use common sense. Does your neighbor who has lived in Florida all her life have her car registered in Pennsylvania? Of course not. Does she belong to a church or synagogue in Pennsylvania? No. Just imagine yourself explaining that to a tax auditor.

In this age of photocopies, e-mail, faxes, word-processing and pdfs, a signed original may seem old-fashioned. But sometimes you actually need an original signed document with a real signature. An original will is very important.

There is always only one original will. If you sit down at a table and sign 5 wills, only the last one you signed is your will. Making a new will automatically revokes all prior wills.

It is common practice to make photocopies of the executed will. Can you probate the copies if you can't find the original? It depends.

There is a conflict between the policy of the law to carry out the decedent's wishes as expressed in a will and, on the other hand, to protect against fraud. Since the person who made the will is no longer alive and cannot tell us what happened to the will and whether or not he or she destroyed it; the law takes special precautions.

When a will cannot be found, a presumption arises. A presumption is a rule of law by which finding of a basic fact gives rise to existence of presumed fact, until the presumption is rebutted. In the case of a missing will, the known fact is that the will is missing, which gives rise to the presumption that it was destroyed with the intention of revoking it. In order to have a copy of a will probated, therefore, the proponent of the will must adduce evidence to overcome that presumption.

To overcome the presumption, evidence must show that (1) someone other than the testator destroyed the will, (2) the decedent did not have access to it and, therefore, could not have destroyed it, or (3) that the decedent made statements up until the time of death that he had a will. The proponent of the copy of the will must also prove by the testimony of two witnesses that the will was executed by the decedent when he or she had testamentary capacity, a diligent search did not turn up the will, and the contents of the lost will are as presented in the copy. Providing actual proof of any of these circumstances can be very difficult and often impossible.

Since the original will is so important, where should you keep it?

I recommend keeping your will in a safe deposit box at your bank so long as no one has access to the box who could benefit by the destruction of the will. I recommend that you drive immediately from the lawyer's office to the bank to put your freshly signed will into your safe deposit box.

In Pennsylvania, a decedent's safe deposit box can be searched, in the presence of two bank officers, for a will. A will and cemetery deed can be removed. This is so even if no one else's name is "on the box," meaning that no one is designated as deputy or attorney-in-fact on the card maintained by the bank. Also, when the box is searched after death, an original will can only be turned over to the named executor, which provides some additional safeguards.

For clients who do not have a safe deposit box and do not wish to rent one, the will can be kept with other important papers at home. Most folks in this category have a safe, strong-box, or "fire-proof" box. I always caution folks that there is no such thing as "fire-proof" - these boxes are fire-rated to withstand high temperatures for a given period of time, say one or two hours, and this is often inadequate for a fire which stays hot long after it appears to be "out." These boxes are nice little ovens.

If the will names a bank or trust company as executor and/or trustee, often the bank will offer safe-keeping services and hold the original document. This is also a good solution to the problem of where to keep the original will.

Some folks let the lawyer who wrote the will hold it in "safe-keeping" for them. This is usually a service provided by law firms at no charge. Sometimes the law firm's motivation for offering the safe-keeping service is to make sure that the family has to come to that law firm to retrieve the original will and, thus, that firm gets first crack at the business of settling the estate. In fact, some lawyers just assume that is the case, taking over the estate settlement, and the executor and family members don't even realize that they have a choice.

Whatever the law firm's motivation for offering to hold your will, this could provide the needed safety. It is a good option so long as the executor and family members understand that the will is being held in safe-keeping and that the executor is free to interview other law firms and make an informed decision about what lawyer or law firm is going to be attorney for the estate. This gives the executor the opportunity to compare fees and the expertise of other lawyers before making a decision.