SECTION REPORT: From the Chair

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Content: Real Property, Probate and Trust Law NEWSLETTER
Issue No. 55
Summer 2003
SECTION REPORT: From the Chair
By Neil E. Hendershot Looking Back, Looking Up I appreciated serving as the chair of the Real Property, Probate and Trust Law Section from May 2, 2002, until April 24, 2003. It was a year-long adventure. During that time, our leadership met at the two PBA Committee/Section Days held in Harrisburg (June and November 2002), and at our own council meeting on Sept. 20, 2002, in Harrisburg. We sponsored the PBI 2002 Annual Real Estate Law Institute and Annual Estate Law Institute, both held in Philadelphia. We conducted our section's annual retreat on March 6-7, 2003, at the Crowne Plaza Hotel in Harrisburg. Almost every month, the section leadership connected in conference calls on the fourth Tuesday. Then, to conclude my term, to elect the next chair, and to renew our leadership, we held our annual meeting in Philadelphia in April 2003, in conjunction with the PBA's annual meeting. I will continue my service as our section's delegate to the PBA House of Delegates. Our renewed and spirited leadership -- my esteemed law school classmate (DSL, Class of `76) Vince Mancini as chair, and two dynamic and capable practitioners, Kirby Upright as Probate and Trust Division Neil Hendershot is a shareholder with the Harrisburg firm of Goldberg, Katzman & Shipman P.C. He served as the RPPT section chair in 2002-03, and supervises the section's two listservs.
chair and Fred Clark as Real Property Division chair -- will continue to coordinate the beneficial work of our section into another year. Vince called for our section's leadership to meet at PBA headquarters on Sept. 19, 2003. Our section will also participate in the next PBA Committee/Section Day, to be held again in Harrisburg at the Holiday Inn East on Thursday, Nov. 20, 2003. Our next retreat, now in the planning stage, will be held on Friday and Saturday, March 5 and 6, 2004, at the Crowne Plaza Hotel in Harrisburg. During the last year, the section can list several accomplishments, some with very long-term effects: Legislative Real Property Law Task Force and Advisory Committee On Nov. 26, 2002, our section's proposal for creation of a Real Property Law Task Force of the Joint state government Commission (JSGC) was adopted by the Legislature during its Special Legislative Session on Real Estate Taxation, in the form of Senate Resolution 244. At that time, I noted in a message on our Real Property listserv as follows: This is a major accomplishment of our section and the PBA -- one that will be marked in the future as a milestone in the development of Pennsylvania's real property laws. We can be proud that our section conceived and promoted the concept,
and then emphasized its urgency. Our role is memorialized in the recitals in the resolution itself: "On the recommendation of its Real Property, Probate and Trust Section, the Pennsylvania Bar Association adopted a resolution urging the Joint State Government Commission to complete the codification process on the subject of real property law." Our section's past chair, Andrea Geraghty, and our section's leadership, along with our legal compatriots David Hostetter and Gregg Warner, promoted SB 244, which was sponsored by the JSGC chair, Sen. Stewart Greenleaf and others (Lemmond, A. Williams, O'Pake, Orie, Costa, Boscola, Kukovich, Holl, Mowery, Kitchen and C. Williams). The vision expressed in the Legislature's resolution is a complete codification and revision of the commonwealth's laws on real property -- "to establish a bipartisan task force with an advisory committee to complete the codification of Pennsylvania's law on real property and to review and update the law on real property on a continuing basis." (Continued on Page 2)
Real Property, Probate and Trust Law Section Newsletter Executive Editor: Neil E. Hendershot* e-mail: [email protected] Phone: 717-234-4161 Editor: Mark B. Hammond** e-mail: [email protected] Phone: 717-264-9381 Associate Editors: Todd A Fuller e-mail: [email protected] Phone: 412-469-3500 Jonathan A. Jordan e-mail: [email protected] Phone: 610-444-8800, X206 PBA Staff Editor: Patricia M. Graybill e-mail: [email protected] Phone: 717-238-6715, X2289 PBA Staff Liaison: Michael T. Shatto e-mail: [email protected] Phone: 717-238-6715, X2243 Contributing to this issue: Daniel B. Evans Mark Hammond Neil E. Hendershot Daniel P. Johnson Stanley J. Lehman Arnold B. Kogan William Mackrides Vincent B. Mancini John F. Meck Erin Milliken Harris Ominsky Raymond P. Parker Kirby Upright The Real Property, Probate and Trust Law Section Newsletter is published biannually by the Real Property, Probate & Trust Law Section of the Pennsylvania Bar Association. Submissions, inquiries or comments may be sent to the Communications Dept., Pennsylvania Bar Assn., P.O. Box 186, Harrisburg, PA 17108, fax 717-238-2342, or to the editors listed above. For additional information call the PBA at 717-238-6715 or 800-9320311, or the Section officers. Copyright © 2003 by the PBA Real Property, Probate & Trust Law Section. *Neil Hendershot is a shareholder with the Harrisburg firm of Goldberg, Katzman & Shipman P.C. **Mark Hammond is editor of the section's newsletter. He is with Franklin Real Estate Services and Abstracting Company, Inc., Chambersburg and is also an adjunct instructor at Wilson College. 2
Section Report: From the Chair (Continued from Page 2) I concluded by recognizing the trust expressed by the Legislature in lawyers, who will serve on the new Real Property Law Advisory Committee (RPLAC). Thus, we want the best-qualified practitioners, judges and professors to serve on this "blueribbon" advisory committee, which shall be "composed of experts on real property law." Our section's nominations of possible appointees will be seriously considered. So, if you are interested and qualified, and have not yet forwarded your name and biographical data either to Sen. Greenleaf's office or to Vince Mancini, our section's chair, please do so. I recently spoke with David Hostetter, counsel at the Joint State Government Commission. He acknowledged interest by 16 practitioners to date. He would be interested in more. In particular, our section should identify law professors and judges who could serve on the RPLAC. Listserv Participation; Newsletter Our section's two listservs (Real Property and Probate & Trust) thrive, as indicated in my article found on Page 39. Routine messages relay breaking legal developments and exchange practice tips in our Real Property and Probate and Trust law areas. This is a major benefit of membership in our section. Many listserv messages become articles in our section's newsletter, which is still produced twice annually. I edited the newsletter continuously since fall 1983. But, after 20 years, I found a wonderful successor editor in Mark Hammond of Chambersburg. I will continue to participate as executive editor. Probate Law Changes Sam Cooke movingly sang, "It's been a long time coming -- But I know a change is gonna come, oh yes, it will." He spoke of racial injustice to be replaced by equality and freedom. Such change still moves through all of us. In our area of the law, I believe
that change is "gonna" come for elders needing care and patients facing end-of-life decision-making. Our laws must evolve to enable dignity, security and peace for each of us as we age and likely encounter disability, then terminal illness. We have addressed some technical legal devices -- the Power of Attorney, the Charitable Unitrust, prudent investments and asset allocation by principal or income. However, the Legislature is shy to address the more sensitive human issues involving medical Health Care powers of attorney and advance care directives. Yet our appellate courts have moved beyond the current restrictive statutory provisions, so that Pennsylvania's common law now provides more grounding and direction than our enacted statutes. The laws "on our books" have become adverse to the rulings of our courts. This situation must be changed. Change has got to come. The DoNot-Resuscitate legislation (see article on Page 16) is a start. Our section supports the proposed "Health Care Power of Attorney" amendment to the Probate Code pending before the Legislature. Also, a Pennsylvania version of the Uniform Trust Code, tailored to existing statutes and essentially codifying our common law on trusts, will be introduced into the Legislature soon by the Joint State Government Commission. Considering the abuses identified with living trusts, such legislation is needed. Our section can make a difference by supporting this legislation, and change will come. Your Participation If "change is gonna come," it will not happen by accident. It begins by intention, and manifests in actions. Please participate in our essential projects. A practitioner's lifetime achievements are not measured only by her or his account balances, client list or partnership status, but also by voluntary replenishment of our legal system by those who benefit from it. The Real Property, Probate and Trust Law Section can be a vehicle for you to act in our mutual betterment. Please participate with us.
DIVISION REPORTS:
Probate and Trust Law
By Kirby Upright The past year has been a busy and eventful year for the Probate and Trust Division of the section. The activity of the section and its accomplishments must be credited, in large part, to our former chair, Neil Hendershot, who has dedicated substantial time and effort, as well as his significant insights and visions, to our successes. As previously reported, our efforts began last fall with a view toward the retreat, which was held March 7 and 8, in Harrisburg. Our goal was to bring to our section a meaningful retreat that combined an element of professional education with an opportunity to enter into some meaningful dialogue on relevant issues. I'm confident that these goals were accomplished. Planning for the retreat continued at the PBA Committee/Section Day where Seth Mendelsohn presented a very meaningful discussion on the living trust issues currently before the Pennsylvania attorney general's office. Section Retreat The retreat was excellent. The "Recent Developments" portion that Vince Mancini and I presented opened a full day of discussions which included the following: Living Trusts ­ Legal counsel to the AARP (formerly the American Association of Retired Persons) presented a very interesting and timely discussion on the issues being faced by AARP, our attorney general's office (Seth Mendelsohn also sat in) and practitioners within Pennsylvania regarding the abuses and misinformation being offered in regard to the sale and promotion of living trusts.
Attorneys Representing Misbehaving Fiduciaries ­ Brad Rainer presented two excellent sessions on professional responsibility considerations as applied to fiduciaries who are not accepting legal counsel's best advice in regard to mishandling of assets and related issues. Orphans' Rule Committee ­ Judge John Cascio, Mary Jane Barrett and Dean Phillips conducted an extended panel discussion Saturday morning on Orphans' Court Rules. This session, which could have gone longer, was brought to an end by the threat of a St. Patrick's Day parade that would have held everyone captive in the Crowne Plaza well beyond planned departure times. Nonetheless, the presentation was excellent and should be considered as a permanent part of our retreat. Division Committee Responsibilities Committee chair positions and committee activities within this section require our attention as we look to the future. Appropriate projects of interest to the section need to be identified and interested trust and estate lawyers recruited to accurately pursue these projects within the division. I invite all interested division members to consider an active role (even taking on a chair opportunity) with our committee. Additionally, articles for the newsletter are also solicited. We look forward to the challenges of the upcoming year in continuing the fine work of our current chairs on behalf of this session. Kirby Upright is a partner in the Stroudsburg law firm of Hanna, Young, Upright and Cantina LLP.
Real Property Law By Vincent B. Mancini The Real Property Division was well represented in the activities and seminars conducted at the RPPT Section spring retreat. Serving then as division chair and now as section chair, I co-presented with Kirby Upright, chair of the Probate and Trust Division, on the opening presentation of the retreat, "Recent Developments in Real Estate and Probate Practice." Chip Mackrides co-presented, on behalf of the Real Property Division, on "Reliable Internet Resources and Listservs for Real Estate and Probate Lawyers." Dave Schwager, chair, and Bert Goodman, vice chair, of the Real Estate Tax Committee conducted a seminar captioned "Recent Developments on Tax Assessment Law." Alan Keiser, chair of the Title Insurance Committee, presented "Primer on Title Insurance and Available Endorsements." Fred Clark, chair of the Finance Committee, and Jacqui Lazo presented "Legal Opinion Letters From Borrower's Counsel" and finally, Chris Clements, chair of the Eminent Domain Committee, presented on the topic of "Eminent Domain Litigation -- Condemnor Strategies." I extend my thanks and gratitude to all of the members of the Real Property Division, together with those of the Probate and Trust Division, who made this past spring retreat one of the best in recent memory. At our division meeting, all committee chairs, and many vice chairs were filled for the Real Property Division. The division committee chairs are now at full complement. The division looks forward to an active and busy upcoming year under the leadership of the new division chair, Fred Clark. Vincent B. Mancini is chair of the RPPT Section. He practices in Media.
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RECENT DEVELOPMENTS: Probate and Trust Law
By Stanley J. Lehman and Erin E. Milliken Recent developments in the area of probate and trust law include several interesting decisions by Pennsylvania courts. Unless otherwise indicated, section and chapter references are to the Pennsylvania Probate, Estates and Fiduciaries Code, Title 20 of the Pennsylvania Consolidated Statutes. Executors and Administrators In Stanford-Gale v. Tax Claim Bureau of Susquehanna County, 816 A.2d 1214 (Pa. Commw. Ct. 2003), the court, in a matter of first impression, held that actual notice of a tax sale to one coadministrator of an estate is sufficient to bind the estate, even in the absence of notice to the other co-administrator. The court looked to two lines of Pennsylvania precedent in reaching its decision. First, the court reviewed the case law, which holds that where multiple owners of real property exist, each is entitled to notice of a tax sale. The court reasoned that that this line of precedent was inapplicable to the present case, as there were not multiple owners, but rather only one owner, namely, the estate. Second, the court looked to case law, which holds that co-administrators are regarded as one person, each possessing full power over the estate. The court found this line of cases to be instructive as to the current case. The court reasoned that because the authority of each co-administrator is joint and several and each one has the power to bind the estate, then notice to either co-administrator was sufficient for purposes of the tax sale. Stanley J. Lehman is a shareholder and chair of the Estate Planning and Administration Department with the Pittsburgh office of Klett Rooney Lieber and Schorling. Erin E. Milliken is an associate with the same firm. 4
Inheritance Tax--Applicable Rate In Estate of Ross, 815 A.2d 30 (Pa. Commw. Ct. 2003), the court held that where funds from the decedent's residuary estate were used, pursuant to the directions in the decedent's will, to pay taxes and expenses, and in doing so, the entire residue of the decedent's estate was consumed, the appropriate tax rate was six percent, despite the fact that the residuary takers were collateral heirs. Specifically, the decedent's will provided for several specific bequests to lineal heirs with the residue being divided among four collateral heirs. The estate took the position that because the entire residuary estate was consumed in the payment of taxes and expenses, thus leaving nothing for the residuary takers, the applicable inheritance tax rate was that for the specific bequest recipients who were lineal descendants, i.e., six percent. The Department of Revenue objected, claiming that federal estate and Pennsylvania inheritance tax cannot be used to reduce a decedent's estate and that the estate was in effect seeking to use the payment of such taxes as a deduction, and no deduction was permitted for such purpose. The court looked to the plain language of the Inheritance and Estate Tax Act, which provides that inheritance tax upon the transfer of property "passing to or for the use of" lineal descendants is to be taxed at a rate of six percent. The court stated that because the provision imposes a tax, it must be strictly construed in favor of the taxpayer. Accordingly, the court held that the use of the residuary to pay the tax on the specific bequests was "for the use of" the lineal descendants and, therefore, six percent was the appropriate rate.1
Intestacy--Maternity by Estoppel In Bahl v. Lambert Farms, Inc., 819 A.2d 534 (Pa. 2003), the court refused to adopt "maternity by estoppel" as a counterpart to "paternity by estoppel" and also refused to extend the doctrine to estop third parties from challenging paternity. In Bahl, the defendant purchased a family farm from the intestate takers of Mr. and Mrs. Bahl. Mr. and Mrs. Bahl had six natural children and one grandchild that they raised as their own, yet never formally adopted. After their death, the farm was distributed to their natural children by intestate succession, and the grandson was not treated as a child for such purposes.2 Subsequent to the sale of the farm to the defendants, the plaintiffs in Bahl, who are the intestate heirs of such grandson, filed suit to partition the farm. Plaintiffs alleged that a portion of the farm was rightfully theirs, basing their claim on the doctrine of "maternity by estoppel." The rationale for the doctrine of "paternity by estoppel" is to protect the expectations of minor children, who are misled as to the identity of their natural father. The Bahl court reasoned that there were no expectations of a minor child at stake. Further, the parents, who may have misled the child, were not themselves challenging paternity, but rather paternity was being challenged by a third party. Accordingly, the court held that under the circumstances, the case was controlled by the clear language of the intestacy statute, and Mr. and Mrs. Bahl's grandson was not a "child" and therefore not an intestate taker. Postnuptial Agreements In Stoner v. Stoner, 819 A.2d 529 (Pa. 2003), the court refused to adopt the position taken by a plurality of the court in Estate of Geyer, 533 A.2d 423 (Pa. 1987), and instead held that a spouse may enforce an antenuptial/ postnuptial agreement without having to demonstrate that statutory rights were disclosed. The Stoner court stated that a plurality of the court in Geyer inappropriately "interjected a new element into the analysis by requiring evidence that the parties were aware of the statutory rights they were relinquishing." The Stoner court found such (Continued on Page 5)
Recent Developments: Probate and Trust Law (Continued from Page 4) a requirement to be in opposition to other Pennsylvania precedent, which holds that antenuptial/postnuptial agreements should be evaluated under the same standards as other contracts and spouses should be bound by the agreement's terms in the absence of fraud, misrepresentation or duress. The court reaffirmed the principle that marriage contracts should not be treated as business deals and that in light of the unique relationship, full disclosure of the parties' financial resources is mandatory. However, the court declined to find that such a unique relationship further requires that the parties be made aware of their statutory rights in order for an antenuptial/postnuptial agreement to be valid. Fiduciaries--Exculpatory Clause In Kramer Estate, 23 Fiduc. Rep. 2d 245 (O.C. Div., Montgomery County, 2003), in a case of first impression in Pennsylvania, the court held that an exculpatory clause included in the decedent's will was ineffective as to the law firm partner of the scrivener where the scrivener/fiduciary could not show that the decedent realized the implications of such a clause. The court stated that an exculpatory clause, which provides that a fiduciary will not be held liable if his act/omission is done in good faith, lowers the fiduciary's duty as to the estate. Accordingly, the court reasoned that where the fiduciary is also the scrivener, the scrivener has the burden to show that the decedent was aware of, and understood, such provision. Further, the court extended such reasoning to provide that such a burden exists even where the fiduciary is a law firm partner of the scrivener, who was not aware of such exculpatory clause. In Kramer Estate, the scrivener could not show that he had discussed the clause with the decedent or that he had ever provided a written explanation of the clause to the decedent. Thus, the court ruled that the exculpatory clause was ineffective as to the scrivener's partner, and instead, the appropriate fiduciary
standard was that of a "prudent man" as set forth in Section 7302. Slayer's Act--Life Insurance In Royal Neighbors of America v. Estate of Cooper, 23 Fiduc. Rep. 2d 159 (Civ. Div., Allegheny County, 2002), the court granted interpleader to an insurance company where the company insured the life of the decedent whose primary beneficiary was being investigated for the decedent's murder. The decedents' policy listed the alleged slayer as primary beneficiary if he was living or, if not, then the proceeds were to go to the alleged slayers' wife. The alleged slayer claimed that the interpleader action was inappropriate arguing that even if he was found to be a "slayer," the proceeds would then go to his wife. The court held, however, that although certain sections of the Slayer's Act (Chapter 88) require that the courts treat the slayer as having predeceased his victim, Section 8811, relating to life insurance, provides that the proceeds be paid to the decedent's estate "unless the policy or certificate designate some person not claiming through the slayer as alternative beneficiary to him." The court said an example of such exception is where the primary beneficiaries are "my three sons" and one of the sons is found to be the slayer. In such case, the other two sons would still be entitled to the proceeds. However, in Estate of Cooper, the alleged slayer was only entitled to the proceeds "if living" and the language of the act did not require that he be treated as predeceased. Accordingly, the court granted the interpleader, holding that if the alleged slayer is indeed found to be the slayer of the decedent, there is a "substantial possibility" that the policy proceeds should be paid to the decedent's estate, as opposed to the alleged slayer's wife. 1. Note that the decedent died prior to the enactment of the new Pennsylvania inheritance tax rates. 2. Further, because such grandson's mother was still living at such time, the grandson also had no inheritance rights as to his natural mother's share.
Mark your Calendar for these Dates: Nov. 20, 2003 Real Property Probate & Trust Section Meeting in conjunction with PBA Committee/ Section Day, Holiday Inn East, Lindle Road, Harrisburg Jan. 21-25, 2004 PBA Midyear Meeting, The Breakers, Palm Beach, Fla. March 5 and 6, 2004 Real Property Probate & Trust Spring Retreat, Crowne Plaza, Harrisburg May 13, 2004 PBA Committee/ Section Day, Hershey Lodge and Convention Center, Hershey 5
ARTICLE: Pew Estate Revisited: Probate of Revocable Trust Required to Commence One-Year Statute of Limitation
By John F. Meck1 In Estate of Newhart, the Pennsylvania Superior Court in a July 9, 2003, memorandum opinion (a non-precedential decision-Superior Court I.O.P. 65.37) revisited and affirmed its decision in an Estate of Pew 655 A.2d 521 (Pa. Super. 1994). Pew required the challenged revocable trust to be probated to commence the one-year statue of limitations under PEF Code Section 908. Estate of Newhart, like Pew, involved a trust contest (primarily undue influence) filed more than one year after the probate of the related pour over will, but where the trust was not probated. Judge Drayer of the Orphans Court of Montgomery County applied Pew to find that the contest of an amendment of a revocable trust was timely filed. In addition, Judge Drayer upheld the validly of the trust amendment. The Superior Court in its July 9, 2003, decision affirmed both holdings.2 But in response to arguments challenging the validity and applicability of Pew, the Superior Court in the Estate of Newhart abandoned common law incorporation by reference, used in Pew, and relied on PEF Code Section 2515 to require probate of a revocable trust to commence the statute of limitations. In Pew, there was a challenge to a 1986 trust. A later 1989 will poured the probate estate into the 1986 trust. Only the will was probated. Judge Taxis held that the trust contest was barred by Section 908. The Superior Court reversed, holding that the 1986 trust had to be probated to commence Section 908 as to the trust contests. John ("Jack") Meck practices with Kabala and Geeseman in Pittsburgh, and chairs the Probate and Trust Division's Orphans Court Practice Committee. 6
The Superior Court in Pew based its holding on the common law doctrine of incorporation by reference; An extrinsic writing may be incorporated into a will or codicil by reference, provided it is clearly identified in that document and is in existence at the time the will was written. An inter vivos trust deed, clearly identified and referred to by the settlor's will, is incorporated in the will as part thereof under the doctrine of incorporation by reference. Documents which are incorporated by reference into the testator's will are to be probated. ... Our reasoning for this conclusion is a follows. While a legal presumption arises that the Register of Will's [sic] probate decree of the probated will is the decedent's last will and is the free and voluntary expression of the testator, of sound disposing mind and understanding, as to the disposition which he desired to make of his property upon his death and such a legal presumption becomes conclusive when that decree is not appealed from within the time allotted by 20 PA.C.S.A §908, this same decree is not conclusive as to documents outside the probate record. Therefore, ... [the trial court] committed error by ... barring the [contestants] from specifically objecting to the validity of distributions made pursuant to the 1986 agreement of trust which, while incorporated by reference into the will, was never submitted to probate.
Thus, while the decree of probate was conclusive of the validity of the will, the same decree is not conclusive concerning the validity of the distributions to be made pursuant to the 1986 agreement of trust. Throughout both Pew and Newhart, counsel, the Orphans Court and the Superior Court applied Section 908 to a trust contest even though there is no reference to a trust in Section 908. Rather, Section 908 refers to appealing from an order of the Register of Wills (e.g. admitting a will to probate and granting letters thereon). Moreover, there is no PEF code provision requiring a trust to be probated. The Superior Court in Newhart responded: While we agree that the legislature has not expressly created such an obligation, we find that our decision in Estate of Pew guides our resolution of the instant case. In Newhart, proponents argued that their facts were distinguishable from Pew. In addition, the Newhart proponents argued that PEF Code Section 2515 adopted in 1957, replaced or eliminated (and did not expand) the common law doctrine as to pour over trusts and that Section 2515 eliminated the need, if there ever was one, to probate such trusts. Section 2515 was not addressed in the Pew opinion. Finally, proponents argued that contestants had actual and constructive knowledge of the trust amendment within one year of the probate of the will. In Newhart, the challenged 1989 trust amendment was not in existence at the time of the 1984 will. The 1984 will poured over to a 1982 revocable (Continued on Page 7)
Article: Pew Estate Revisited: Probate of Revocable Trust Required to Commence One Year Statute of Limitation (Continued from Page 6) trust, to which the 1989 amendment applied. Because the common law doctrine of incorporation by reference requires the incorporated document (here the 1989 trust amendment) to exist when the will was written (here 1984), the common law theory of Pew cannot apply to the Newhart facts. The Superior Court agreed: Herein, contestants cannot demonstrate that the common law doctrine of incorporation by reference applies since the 1989 Trust Amendments were not in existence when the 1984 wills were executed. The Superior Court then adopted Section 2515 to support and affirm its holding in Pew and Newhart for it "effectively operates to expand the [common law] doctrine in those instances where a testator makes a devise or a bequest to a trust in his/her will" (emphasis added). Proponents argued in Newhart that Section 2515 replaced that doctrine rather than expanding it. Section 2515, Devise or bequest to trust. A devise or bequest in a will may be made to the trustee of a trust, including any unfunded trust, including any unfunded trust established in writing by the testator or any other person before, concurrently with or after the execution of the will. Such devise or bequest shall not be invalid because the trust is amendable or revocable or both, or because the trust was amended after execution of the will. Unless the will provides otherwise, the property so devised or bequeathed shall not be deemed held under a testa-
mentary trust of the testator but shall become and be a part of the principal of the trust to which it is given to be administered and disposed of in accordance with the provisions of the instrument establishing that trust and any amendment thereof. An entire revocation of the trust prior to the testator's death shall invalidate the devise or bequest unless the will directs otherwise. The rationale of the Superior Court in Newhart was as follows: As the language of Section 2515 clearly provides, the amendment of a trust after the execution of the will is a valid practice. Accordingly, we cannot see why the concepts underlying our decision in Estate of Pew would not extend to the instant case. To hold otherwise, we would require the executor of a will to offer the will, and the previous version of the trust for probate, but would not require the executor to offer a subsequent, valid amendment to the trust document. Such a practice would ignore the underlying concern of our court in Estate of Pew, namely, that the presumption of validity can only attach to those documents that are accepted for probate. Still, proponent maintains that the language of Section 2515 indicates that an inter vivos trust document need not be offered for probate. We cannot agree. While we recognize that Section 2515 explicitly designates the "property so devised or bequeathed [to the inter vivos trust] shall not be deemed held under a testamentary trust of the testator," the plain language does not indicate that the legislature sought to wholly exclude
them from the probate process.3 Absent some clear expression from the legislature, we may not depart from our court's holding in Estate of Pew that inter vivos trust documents must, in some instances, be offered for probate to give potential contestants an opportunity to challenge their validity. The Superior Court did not address the proponents' argument that contestants had both actual notice (contestants received a copy of the contested trust amendment five months after the probate of the will) and constructive notice (the probated will referred to the 1982 trust and any amendments thereto) within one year of the probate of the will. Uniform Trust Code (UTC) Five states have adopted the UTC: Arizona, Kansas, Nebraska, New Mexico and Wyoming. The UTC has a chapter dealing with Revocable Trusts. Section 604, the statue of limitation for challenging a revocable trust, does not require the trust to be probated to commence the statute. The Pennsylvania version of the UTC has been considered at three meetings over the last 18 months by the Decedents' Estates Advisory Committee of the Joint State Government Commission. The Pennsylvania proposal should be introduced into the Pennsylvania General Assembly in the fall of 2003. The time period to challenge a revocable trust will be one year (similar to Section 908) measured from date of death and does not require the trust to be probated. Other provisions of the UTC will require the trustee of a revocable trust, following death of the settlor, to give notice to the spouse, children and named trust beneficiaries, similar to Rule 5.6 for Wills. In addition, the one-year period to challenge a revocable trust can be reduced to six months as to any contestant receiving a specified form of notice from the trustee following settlor's death. The July 2003 version of Pennsylvania's proposed UTC (Continued on Page 8) 7
Article: Pew Estate Revisited: Probate of Revocable Trust Required to Commence One Year Statute of Limitation (Continued from Page 7) Section 604, which will become (if enacted) Section 7754 of the PEF code and the Pennsylvania Comment thereto, are set forth below: §7754. Actions contesting validity of revocable trust. (a) How action may be commenced -- A person having standing to do so may contest the validity of revocable trust by filing a petition with the court. (b) Time Limit -- The petition described in subsection (a) shall be filed no later than the earlier to occur of: (1) one year after the settlor's death; or (2) six months after the date on which the trustee, following the settlor's death, gives the contestant a notice described in Section 7780.3(i) (relating to duty to inform and report). (c) Grounds for contest -- The grounds for contesting the validity of a revocable trust shall be the same as those for contesting the validity of a will. Pennsylvania Comment This Section and § 7755 replace UTC § 604. Subsections (a) and (b) are based upon UTC § 604(a). The concepts contained in UTC §604(b) are now part of § 7755. Recognizing that revocable trusts are typically will substitutes, this section applies comparable rules to the two documents, except that a revocable trust instrument is not probated. Because there is no requirement that a trust instrument be filed with the Register of Wills or elsewhere in the 8
public records, the provisions of 20 Pa.C.S. governing actions before the Register of Wills are not applied to such trusts, and a challenge of the validity of a revocable trust must be filed with the court. The grounds for contesting wills and trusts are the same. The UTC's three-year period of limitations for challenging the validity of a trust is replaced with a oneyear period that parallels the time limitation applicable to will contests appearing in 20 Pa.C.S. § 908. The longer period of limitations is inconsistent with prompt distributions from such trusts after the settlor's death. Also of note is proposed PEF Code Section 7751. §7751. Capacity of settlor of revocable trust - UTC 601: The capacity required to create, amend, revoke or add property to a revocable trust, or to direct the actions of the trustee of a revocable trust, is the same as that required to make a will. 1 John F. Meck was consulting counsel to the trial counsel for the proponents in Estate of Newhart assisting on the Pew issue, trial strategy and briefs, as well as arguing the case in the Pennsylvania Superior Court. 2 The contestants in Newhart have filed and there is pending, an application for re-argument on undue influence, primarily on an evidentiary issue related to weakened intellect. 3 Proponents argued that this sentence in Section 2515 made clear that the pour over trust did not have to be probated citing a 1957 Fiduciary Review article that made this same observation based on this sentence of Section 2515.
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ARTICLE: Understanding and Planning for Pennsylvania's Decoupled Estate Tax
By Daniel P. Johnson and Raymond P. Parker
In response to the phase-out of the state death tax credit as part of the federal economic growth and Tax Relief and Reconciliation Act of 2001 (EGTRRA), Pennsylvania and a number of other states have enacted legislation to recover from decedents' estates the tax revenues that would otherwise be lost. The result of the legislation is an increase in the state death tax obligation imposed on estates. This article will review the decoupling legislation and the increased estate taxes that may be due. Practical suggestions will be offered to minimize the estate tax obligation through the drafting of estate-planning documents and through post-mortem planning approaches. In addition, the constitutionality of the Pennsylvania decoupling legislation will be addressed.
I. Impact of Federal Law Changes to
State Revenue
Prior to 2001, taxpayers received a
dollar-for-dollar credit against their
federal estate tax liability for state
estate (and, to some extent, inheri-
tance) tax payments up to 16 percent
of the taxable estate. This type of
state-level estate tax is commonly
referred to as a "pick-up" tax. Thirty-
six states and the District of Columbia
have only the pick-up tax, which
means that the state estate tax equals
the amount of the state credit.1
Fourteen
states,
including
Pennsylvania, have their own sepa-
rate inheritance tax, a portion of
which qualifies as a pick-up tax.2 Pick-
up taxes have historically provided
Daniel P. Johnson and Raymond P. Parker are with Williams Coulson Johnson Lloyd Parker & Tedesco, LLC of Pittsburgh.
substantial revenue to the states and functioned as a significant form of revenue sharing with the federal government. Pennsylvania and other states to an even greater degree relied heavily on this longstanding source of revenue. The EGTRRA3 phases out the federal credit (under IRC Section 2011) that funds the state pick-up taxes entirely by 2005.4 The state death tax credit amount that may be taken against the federal estate tax is reduced 50 percent for death in 2003, 75 percent for death in 2004, and 100 percent for deaths occurring in 2005 or thereafter. Thus, no federal credit will be available beginning in 2005. Instead, a state death tax deduction (under IRC Section 2058) would be allowed for federal estate tax purposes beginning in 2005. As a result of the phase-out of the credit, states will lose some or all of their estate tax revenues. The impact of the loss depends on whether the state has only a pick-up tax or whether the state, in addition to the pick-up tax, has a separate inheritance tax as well. The majority of states with only a pick-up tax, such as Florida, will see the largest impact. To put into terms the significance of the revenue loss, if the state credit had been repealed in 2002 and all states conformed to the federal law change, the states, in aggregate, would have lost nearly $5.7 billion in revenue.5 In 2002, Pennsylvania alone collected approximately $60 million in tax revenue from the pick-up tax.6 II. What is Decoupling? States can avoid the loss of rev- enue by "decoupling." Decoupling means protecting the relevant parts of the state's tax code from the changes in the federal tax code, mostly by remaining linked to the federal law as it existed prior to the
EGTRRA change. Currently, there are 17 states, including Pennsylvania, and the District of Columbia that are decoupled.7 Pennsylvania and nine other states (Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, North Carolina, Rhode Island and Vermont) took affirmative legislative action to decouple from the phase out of the federal estate tax. In seven states (Arkansas, Kansas, New York, Ohio, Oregon, Virginia and Washington) and the District of Columbia, the estate tax laws are written in a way that the state will not conform to the federal changes unless it takes legislative action. None of these states, with the exception of Arkansas, have taken any action to conform to the federal change. Arkansas, however, is apparently conforming to the federal change but awaiting legislative action in 2003. Although particulars vary from state to state, decoupling legislation effectively uses the mechanisms of the federal estate tax law to create a separate, state-level estate tax with a maximum 16 percent rate. In passing EGTRRA, Congress purported to "eliminate" the estate tax, but this "elimination" does not fully reduce federal estate taxes until 2010. Meanwhile, the states are presently disadvantaged because the federal credit (under IRC Section 2011) that funds the state pick-up taxes is completely eliminated by 2005.8 Ironically, the combined effect of EGTRRA and decoupling legislation is an interim increase in the combined death tax rate of decedents with large estates. III. Pennsylvania Decoupling Legislation Pennsylvania has enacted legislation linking its estate tax to the feder- (Continued on Page 10) 9
Article: Understanding and Planning for Pennsylvania's Decoupled Estate Tax (Continued from Page 9) al estate tax as it existed before 2001. In other words, in determining its "state exemption amount," Pennsylvania uses the federal estate tax exemption amount as it was scheduled before the 2001 Act (i.e., $700,000 in 2003; $850,000 in 2004; $950,000 in 2005; and $1 million in 2006 and thereafter).9 Pennsylvania's approach is as if EGTRRA was never passed. Therefore, the entire taxable estate in excess of the state exemption amount, depending on the year of death, will be subject to Pennsylvania's estate tax. CAVEAT: Questionable Constitutionality of Pa. Decoupling Legislation Pennsylvania's decoupling legislation raises a concern as to its constitutionality. According to Article VIII, Section 1 of the Pennsylvania Constitution, "all taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under General Laws." Therefore, no tax is lawful unless uniformly applied. Pennsylvania's decoupling legislation essentially holds onto the federal law as it existed prior to EGTRRA and continues to calculate the estate tax at the same graduated rate scale with a maximum marginal rate of 16 percent.10 The variable rate schedule may conflict with the tax uniformity requirement of the Pennsylvania Constitution. If this is the case, then the decoupling legislation will be unconstitutional. In such a case, Pennsylvania, like other states that have not decoupled, will lose its state death tax credit completely in the year 2005. According to informal contacts with the Pennsylvania Department of Revenue, assessments for collection of Pennsylvania's estate tax will be sent to taxpayers beginning in August 2003, despite the evident questions regarding the constitutionality of the tax. Apparently, the Legislature has been asked by the Department to con- 10
sider alternate legislation, but no proposals had been introduced as of August. In the absence of legislative clarification or alternatives, the courts will inevitably be petitioned to address the constitutional question. IV. Impact of Decoupling on Estate Tax Planning in Pennsylvania Typically, an estate plan for a married couple involves taking advantage of each of the spouses' federal estate tax exemption while postponing state and federal death taxes at second death. A trust is created to shelter the federal exemption amount while the balance of the estate of the first spouse to die passes to the surviving spouse in trust for her benefit to qualify for the marital deduction. Now that Pennsylvania has "decoupled" its state estate tax from the federal estate tax, funding the credit trust with the full federal exemption amount will cause a state estate tax. There are several estate tax planning options for dealing with the state estate tax depending on the size of the individual's estate. A. Limit the Size of the Exemption or Credit Trust Instead of fully utilizing the federal exemption amount to fund the credit trust, an individual's will or revocable trust can "cap" the credit trust to the state exemption amount (i.e., $700,000 for 2003). This will lessen death taxes at the first spouse's death, but it may result in higher federal estate tax at the surviving spouse's death depending on the size of the combined estates. This is a good option for small- or modestsized estates. For example, Scenario 1 below illustrates funding the credit trust at $700,000 compared to Scenario 2, which illustrates funding the credit trust at $1 million. Scenario 2 results in a higher tax. Scenario 1 -- A married couple has a $2 million combined estate ($1 million each). The husband dies in 2003, and his credit trust is funded with $700,000. The wife dies in 2005.
1st Death Federal Estate Tax: None (assumes a credit trust of $700,000 and a marital trust of $300,000) PA Inheritance/Estate Tax: Calculating inheritance tax on the remainder interest assuming a credit trust of $700,000: $340,347 (life estate in wife) x 0 percent = $0; $359,653 (remainder interest to issue) x 4.5 percent = $16,184 2nd Death Federal Estate Tax: None (taxable estate is $1.3 million and exemption is $1.5 million) PA Inheritance/Estate Tax: (a) Calculating inheritance tax on $1.3 million @ 4.5 percent = $58,500 (b) Calculating the state death tax credit on $1.3 million = $51,600 Result: pay the higher amount of $58,500 Total PA taxes paid: $16,184 + $58,500 = $74,684 Scenario 2 -- A married couple has a $2 million combined estate ($1 million each). The husband dies in 2003, and his credit trust is funded with $1 million. The wife dies in 2005. 1st Death Federal Estate Tax: None (assumes a credit trust of $1 million and no marital trust) PA Inheritance/Estate Tax: (a) Calculating inheritance tax on the remainder interest assuming a credit trust of $1 million: $486,210 (life estate in wife) x 0 percent = $0; $513,790 (remainder interest to issue) x 4.5 percent = $23,121 (b) Calculating the state death tax credit on $1 million = $33,200 Result: pay the higher amount of $33,200 (Continued on Page 11)
Article: Understanding and Planning for Pennsylvania's Decoupled Estate Tax (Continued from Page 10) 2nd Death Federal Estate Tax: None (taxable estate is $1 million and exemption is $1.5 million) PA Inheritance/Estate Tax: (a) Calculating inheritance tax on $1 million @ 4.5 percent = $45,000 (b) Calculating the state death tax credit on $1 million = $33,200 Result: pay the higher amount of $45,000 Total PA taxes paid: $33,200 + $45,000 = $78,200 However, funding the credit trust with the state exemption amount (i.e., $700,000 for 2003) is not beneficial for large estates because it will likely result in greater overall tax payments. For large estates, the credit trust should be funded with the full federal exemption amount of $1 million. This comparison is illustrated below. Scenario 3 -- A married couple has a $10 million combined estate ($5 million each). The husband dies in 2003, and his credit trust is funded with $700,000. The wife dies in 2005. 1st Death Federal Estate Tax: None (assumes a credit trust of $700,000 and a marital trust of $4.3 million) PA Inheritance/Estate Tax: Calculating inheritance tax on the remainder interest assuming a credit trust of $700,000: $340,347 (life estate in wife) x 0 percent = $0; $359,653 (remainder interest to issue) x 4.5 percent = $16,184 2nd Death Federal Estate Tax: $3,666,000 (taxable estate is $9.3 million and exemption is $1.5 million; state credit is eliminated) PA Inheritance/Estate Tax: (a) Calculating inheritance tax on
$9.3 million @ 4.5 percent = $418,500 (b) Calculating the state death tax credit on $9.3 million = $961,200 Result: pay the higher amount of $961,200 Total PA taxes paid: $16,184 + $961,200 = $977,384 Total Federal Estate Tax: $3,666,000 Total Taxes: $4,643,384 Scenario 4 -- A married couple has a $10 million combined estate ($5 million each). The husband dies in 2003, and his credit trust is funded with $1 million. The wife dies in 2005. 1st Death Federal Estate Tax: None (assumes a credit trust of $1 million and a marital trust of $4 million) PA Inheritance/Estate Tax: (a) Calculating inheritance tax on the remainder interest assuming a credit trust of $1 million: $486,210 (life estate in wife) x 0 percent = $0; $513,790 (remainder interest to issue) x 4.5 percent = $23,121 (b) Calculating the state death tax credit on $1 million = $33,200 Result: pay the higher amount of $33,200 2nd Death Federal Estate Tax: $3,525,000 (taxable estate is $9 million and exemption is $1.5 million) PA Inheritance/Estate Tax: (a) Calculating inheritance tax on $9 million @ 4.5 percent = $405,000 (b) Calculating the state death tax credit on $9 million = $916,400 Result: pay the higher amount of $916,400 Total PA taxes paid: $33,200 + $916,400 = $949,600 Total Federal estate tax: $3,525,000 Total Taxes: $4,474,600 B. Planning Considerations. 1. Drafting Approaches The impact that this legislation has
on any particular estate depends greatly upon the drafting approach used to control the marital deduction. Accordingly, an analysis of typical approaches in an estate plan for the coordinated use of the federal exemption and marital deduction should be considered. a. Minimum Tax Formula. Some estate planning documents employ language that calls for the smallest marital amount needed to reduce federal and state estate taxes to the lowest possible amount. · Although this type of a provision will reduce all taxes to the greatest possible extent, it may also create an "over-maritalized" division of assets at the first death, which could result in substantial additional federal estate tax liability at the second death. · See the illustrations below for examples of the additional estate tax liability at the death of the surviving spouse. · Multi-state assets -- even assets of very insignificant value located in a decoupled state -- might cause regrettable wasting of federal unified credit sheltering. b. Minimum Federal Tax with "Cutback." Perhaps the most common formula language used calls for the smallest marital amount needed to reduce federal estate taxes to the lowest possible amount, considering state death tax credits only to the extent there is no resulting increase in state death taxes. · This type of a provision will make full use of the federal exclusion amount, but where the state death tax credit has been decoupled, a state death tax may be created. · The additional tax paid to the state at the first death may result in substantial federal estate tax savings at the second death. c. Minimum Federal Tax without "Cutback." A less-common variation on clause type "b" above calls for the smallest marital amount needed to reduce federal estate taxes to the lowest possible amount, considering state death tax credits even if there is a resulting increase in state death taxes. (Continued on Page 12) 11
Article: Understanding and Planning for Pennsylvania's Decoupled Estate Tax (Continued from Page 11) · This type of a provision will make full use of the federal exclusion amount, and then some. The result will be that the credit shelter trust will be funded with an amount in excess of the exclusion amount, with the excess being equal to the amount of property producing a federal estate tax equal to the available state death tax credit. · At least until the year 2005, in states were the state death tax credit has been decoupled and would be otherwise payable by an estate, significant additional funding could be produced in the credit shelter trust by funding according to this method. d. Single QTIP Trust. Another option is to provide for the transfer of all of a decedent's assets into a single trust that meets the marital deduction QTIP requirements of IRC §2056(b)(7). Following death, the executor makes a determination as to the portion of the trust for which a QTIP election will be made. · This planning technique gives the executor the flexibility to make a postmortem determination as to whether to elect QTIP treatment over the minimum amount necessary to eliminate federal estate taxes or over a greater amount so that no state estate taxes will be due. e. Clayton Trust Formula. This alternative permits the postmortem determination as to the amount of funding in a QTIP trust. The QTIP trust will be funded only to the extent the executor makes a QTIP election. A marital deduction is permitted by this technique pursuant to the decision in Clayton v. C.I.R., 976 F. 2d 1486 (5th Cir. 1992) and the regulations. Treas. Reg. §§20.2056(b)-7(d)(3) and (h) (Example 6). · This approach allows the executor to either: (i) limit the funding to the amount necessary to eliminate federal estate tax, or (ii) increase the funding to the amount necessary so that no state estate tax will be incurred. If 12
the second option is elected, the decedent's full federal exemption will not be utilized, which could increase the federal estate taxes due at the second death. · The Clayton Trust formula differs from the single QTIP Trust in that the amount qualifying for the marital deduction under the Clayton Trust formula technique will be held and administered separately from the assets over which no QTIP election was made. f. Possibility of separate QTIP election for Pennsylvania estate tax purposes. Consider the possibility of a Pennsylvania-only QTIP trust. If permitted, the state exemption amount would be transferred into the credit shelter trust. An amount equal to the difference between the federal and state exemptions would be transferred into a separate Pennsylvania QTIP trust (PA QTIP). No federal QTIP election would be made for this PA QTIP. If the Pennsylvania-only QTIP election is respected: (i) no state estate taxes will be due on the assets in this trust at the first death, and (ii) the decedent spouse's full federal estate tax exemption will be utilized so that the assets remaining in the PA QTIP trust will not be subject to federal estate tax at the second spouse's death. Pennsylvania would presumably add the value of the PA QTIP to its computation of Pennsylvania estate tax liability at the second death. · Be aware of Rev. Proc. 2001-38. If a QTIP election is made in a situation where it is not necessary to reduce the federal estate tax liability, the QTIP election will be ignored for federal tax purposes. If Pennsylvania permits a state-only QTIP election, this should not be an issue. However, if a federal QTIP election is made over the PA QTIP trust described above, Rev. Proc. 2001-38 may be applicable and its consequences cannot be known with certainty. Possibilities include: (i) Rev. Proc. 2001-38 is not applicable. The QTIP election is made to reduce tax, albeit state estate tax (rather than federal tax) with the consequence that the assets in the trust are subject to federal estate tax at the
second death; (ii) Pennsylvania may take the position that the election for the separate QTIP trust is not effective for federal purposes and is therefore not effective for state purposes; (iii) no federal or state tax in either estate; or (iv) no federal tax in either estate and state tax in only one estate. C. Limiting the Credit Trust with Disclaimer Planning The use of a disclaimer could provide flexibility to the surviving spouse who could add to the exemption or credit trust and thus reduce the overall tax cost to the combined estates. This option allows for planning to be deferred until after the first spouse dies. With this technique, all of the property of the first spouse to die is given outright to the surviving spouse. The surviving spouse then disclaims all or a portion of the assets. However, certain requirements need to be met to have a valid disclaimer. Thus, timely action following the first spouse's death is crucial. Disclaimer planning may be appropriate for married couples with a combined estate of less than $2 million and in cases where a couple's future financial situation may be uncertain. For example, the first spouse dies with assets of $1.4 million and the surviving spouse has minimal assets. The revocable trust of the first spouse leaves the entire $1.4 million outright to the surviving spouse, but the trust has a provision allowing for the surviving spouse to disclaim all or a portion of the amount to fund a credit trust. The surviving spouse could fund the credit trust with $400,000 by disclaimer and receive the remainder outright. At second death, assuming the surviving spouse's assets are still worth $1 million, the entire $1.4 million would pass to the children free from federal estate tax (assuming the estate tax exemption is $1 million). D. Lifetime Gifting Establishing an annual gifting program will lower the value of an individual's taxable estate, and will reduce the federal and state death taxes. Currently, an individual can (Continued on Page 13)
Article: Understanding and Planning for Pennsylvania's Decoupled Estate Tax (Continued from Page 12) gift up to $11,000 per donee per year. The gifting program can be in the form of making outright gifts to family members or creating an irrevocable trust agreement to make gifts to credit members. Taking advantage of the gift tax exclusion amount in a gifting program is an effective way to reduce the size of an individual's taxable estate. Large gifts that use the clientunified credit will also now result in a state death tax savings because such gifts extinguish a claim for the state death tax credit amount provided by the typical decoupling legislation. In Pennsylvania, if such a gift is made more than one year before death, it will escape imposition of the Pennsylvania inheritance tax as well. Even if a unified credit-consuming gift were made shortly before death it would avoid Pennsylvania estate tax and, depending on the beneficiaries of that gift and the size of the taxable estate, result in an overall state death tax savings. If such gifts are made with cash or other full-basis assets, there will be no loss of the IRC Section 1014 basis step-up. Example 1: Suppose a combined estate of $2 million, with the first-todie spouse making a transfer, more than one year before death, of $1 million to a trust that uses that spouse's entire federal exemption amount. At death, the balance of the estate, if any, goes to a marital deduction trust. This transfer should result in no federal tax by reason of the federal exemption; because it is made during lifetime, it should result in no Pennsylvania estate tax; because it is made more than one year before death, it should not be subject to Pennsylvania inheritance tax at the death of the first-todie spouse or the surviving spouse. Example 2: Suppose a combined estate of $2 million, with the first-todie spouse making a death bed transfer of $1 million to a trust for which no federal marital deduction is elected but nevertheless qualifies as a
Pennsylvania inheritance tax spousal sole use trust. This transfer should fully use the federal exemption, result in no Pennsylvania estate tax, and defer Pennsylvania inheritance tax until the death of the surviving spouse, which may be escaped altogether if he or she is no longer a resident of Pennsylvania at death. Example 3: Suppose a surviving spouse has an estate of $15 million of low-basis stock and makes a death bed transfer of the $10 million cash (borrowed from a bank) to a trust for issue. This transfer should fully use the federal unified credit and create a gift tax liability. It should avoid more than $1 million in Pennsylvania estate tax, with only a $600,000 Pennsylvania inheritance tax at death. The resulting state death tax saving is in excess of $400,000. V. Other States' Response to the Decoupling Issue In comparison to Pennsylvania, which essentially keeps the scheduled increases of the prior federal law, New Jersey and New York take a slightly different approach to decoupling. New Jersey calculates its state estate tax using a state exemption amount of $675,000 without any scheduled increases like the prior federal law. Thus, all taxable estates in excess of $675,000 are subject to New Jersey estate tax. New York, on the other hand, calculates its state estate tax with a state exemption amount of $1 million.11 All three states continue to compute the tax at the same graduated rate scale with a maximum marginal rate of 16 percent. While most states can decouple through legislative action, a few states are faced with formidable barriers to amending their law.12 For instance, in California, decoupling would require a referendum. In Alabama, Florida and Nevada, constitutional provisions restricting the amount of estate tax levied would need to be altered. Oklahoma is the only state that has no need to decouple because its tax is designed in a way that avoids any loss of revenue from federal changes.
VI. Out-of-State Assets If working with a client who owns real estate or tangible personal property in another state, a review of that state's law is required. If the state has decoupled, consideration should be given to transferring those assets into a limited partnership or limited liability company in an effort to avoid the estate taxes of that state. This is especially important in states where the method of decoupling is different than that of Pennsylvania. It is possible that the state estate tax due a state, such as New York for example, could exceed the value of the property held in that state. See Appendix A on Page 14 for an illustration of how an estate with property in more than one state may find that state estate tax liability may be disproportionate to the value of property sitused in a state. VII. Conclusion Pennsylvania's decoupling legislation creates a separate state-level estate tax using federal law in effect before the enactment of EGTRRA. Until the courts of Pennsylvania declare the current Pennsylvania estate tax unconstitutional, estate planners and administrators must grapple with the best strategies to minimize or avoid payment of tax. As a result, the drafter of an appropriate estate plan should assume that the state estate tax is constitutional. The appropriate estate planning response to decoupling state estate tax depends on the size of the estate. To lessen the tax burden for small- to modest-sized estates, the credit trust could be funded with the state exemption amount and not the federal exemption amount. For larger estates, maximizing the credit trust with the federal exemption amount is likely to lessen the tax burden. In addition, consideration should be given to the use of a state-only marital deduction that would seek to defer Pennsylvania estate tax until the death of a surviving spouse. Lifetime transfers that may be otherwise advisable for federal estate tax planning have the additional benefit of avoiding Pennsylvania estate tax. Finally, spe- (Continued on Page 15) 13
Appendix A: Understanding and Planning for Pennsylvania's Decoupled Estate Tax
Article: Understanding and Planning for Pennsylvania's Decoupled Estate Tax: Appendix A Florida Resident: property with New York and Florida situs
Formula for computing Fl. estate tax for resident: Fl. Estate Tax = Fl. Credit - NY Estate Tax 1st) NY Estate Tax = NY Credit - lesser of (Fl. Estate Tax) and (NY Credit*[Total Estate - NY Situs Estate]\Total Estate) 2nd)NY Estate Tax = NY Credit - lesser of (Fl. Credit - NY Estate Tax) and (NY Credit * Fl. Situs Estate\Total Estate) 3rd) If NY State Tax = NY Credit - Fl. Credit + NY Estate Tax, then NY Credit = Fl. Credit, which is not the case
Formula for computing NY estate tax for nonresident: Therefore, NY Estate Tax = NY Credit - (NY Credit * Fl. Situs Estate\Total Estate) for 2003 and 2004 However, for 2005 and beyond, argument can be made that NY Estate Tax = NY Credit because ... 1st) NY Estate Tax = NY Credit - lesser of (Fl. Estate Tax) and (NY Credit*[Total Estate - NY Situs Estate]\Total Estate) since FL Estate Tax = 0 and (NY Credit * Fl. Situs Estate\Total Estate) will always be a positive number. 2nd) NY Estate Tax = NY Credit - 0
(although Fl. resident, bulk of property in NY)
Death in 2003
Total estate $2,000,000
NY situs estate 1,750,000
Fl. situs estate 250,000
NY credit
99,6000
Fl. credit
49,8000
NY tax Fl. tax
$87,150 0
Death in 2003
Total estate $2,000,000
NY situs estate 250,000
Fl. situs estate 1,750,000
NY credit
99,6000
Fl. credit
49,8000
NY tax Fl. tax
$12,450 37,350
(bulk of property in Fl.)
Death in 2003 (federal state death tax credit completed phased out)
Total estate $2,000,000
NY situs estate 250,000
Fl. situs estate 1,750,000
NY credit
99,6000
Fl. credit
0
NY tax Fl. tax
$99,600 0
Total estate $2,000,000
NY situs estate 1,000,000
Fl. situs estate 1,000,000
NY credit
99,6000
Fl. credit
49,8000
NY tax Fl. tax
$49,800 0
14
(one-half of property in Fl. and one-half in NY)
Total estate $2,000,000
NY situs estate 1,000,000
Fl. situs estate 1,000,000
NY credit
99,6000
Fl. credit
0
NY tax Fl. tax
$99,600 0
Credit Charles D. Fox; used with permission.
Article: Understanding and Planning for Pennsylvania's Decoupled Estate Tax (Continued from Page 13) cial planning care should be exercised where estate assets have a situs in multiple states, as the application of decoupling legislation to such assets may have adverse and -- worse yet for the estate planning attorney -- avoidable tax consequences. 1 Elizabeth C. McNichol, Iris J. Lav and Joseph Llobrera, "States can Retain their Estate Taxes even as the Federal Estate Tax is Phased Out," Center on Budget and Policy Priorities; Feb. 4, 2003; p. 4. 2 Id.
3 Under EGTRRA the maximum estate and gift tax rate was reduced to 50 percent in 2002, and declines by one percent each year after that until the maximum rate is 45 percent. The unified credit applicable exclusion amount was also increased to $1 million in 2002, and will increase to $1,500,000 in 2004, to $2 million in 2006, and to $3.5 million in 2009. The entire estate tax is scheduled to be repealed in 2010, but pre-EGTRRA gift and estate tax rates will be reemerged in 2011 if Congress does not act to make EGTRRA permanent before then. 4 Elizabeth C. McNichol and Joseph Llobrera, "Why States should Act Now to Preserve their Estate and Inheritance Taxes," Center on Budget and Policy Priorities; Feb. 4, 2003; p. 1.
5 Elizabeth C. McNichol, Iris J. Lav and Joseph Llobrera, supra at p. 9. 6 Id. 7 Elizabeth C. McNichol, "Many States are Decoupling from the Federal Estate Tax Cut," Center on Budget and Policy Priorities; Dec. 6, 2002; p. 1. 8 Elizabeth C. McNichol and Joseph Llobrera, "Why States should Act Now to Preserve their Estate and Inheritance Taxes," Center on Budget and Policy Priorities; Feb. 4, 2003; p. 1. 9 72 P.S. §9102. 10 McNichol, supra at p. 1. 11 Phillip B. Rarick, "Legal Sand Traps and Up-Dates of Florida Trust, Probate and Real Estate Law For Attorneys Outside the State," Florida Law Report, Volume 11, March 2003. 12 Id.
REAL PROPERTY, PROBATE AND TRUST LAW SECTION COMMITTEE ASSIGNMENT REQUEST
Probate and Trust Law Division: Business Succession Planning Estate Planning Ethics Federal/State Law Interaction Fiduciary Services for Aged and Infirm Fiduciary Compensation Legislative Office Practices Orphans Court Practice Committee Program Publications Taxation
Real Property Division: Common Interest Ownership Eminent Domain Law Financing of Real Estate Landlord and Tenant Liaison to Ethics and Professional Responsibility Committee Publications Statutory Consolidation Title Insurance Vendors and Purchasers Web Site Liaison Zoning and Land Use
Name ________________________________________ Atty. I.D.#________________________ Address ____________________________________________________________________________ City __________________________________________ State__________ Zip Code ________
Section members, please return this form to Real Property, Probate and Trust Law Section Committee Assignments, Pennsylvania Bar Association, PO Box 186, Harrisburg, PA or FAX to (717) 238-7182.
15
ARTICLE: Do-Not-Resuscitate Documents Promulgated by Pennsylvania Department of Health
By Neil E. Hendershot In June 2002, the Pennsylvania Legislature enacted the "Do-NotResuscitate Act" as Act No. 2002-59, P.L. 409, No. 59, codified at 20 P.S. §§ 54A01-54A13. Generally, it empowers terminally ill patients to make personal decisions regarding resuscitation, including CPR, in an out-ofhospital setting. For the Act, see www.health.state.pa.us/pdf/ dnrstatute.pdf Act 59 was signed into law on June 19, 2002, and went into effect on Aug. 18, 2002. It required the Department of Heath to promulgate, after a public hearing (which was held on Sept. 12, 2002) interim regulations to aid in the implementation of Act 59 by Dec. 16, 2002. These regulations, as finalized and made effective March 1, 2003, are now found at 28 Pa. Code §§ 1051.11051.101). For the regs, see www.health.state.pa.us/pdf/ DNRregs1.pdf The Pennsylvania Department of Heath also developed and posted a guide to provide general information to patients, families, and physicians in regards to Out-Of-Hospital Do Not Resuscitate (DNR) orders, bracelets, and necklaces now authorized by the Do Not Resuscitate Act. For the FAQs, see www.health.state.pa.us/pdf/ DNR%20_materials.pdf The Department recently posted a sample DNR Order form online. For the form, see www.health.state.pa. us/pdf/ DNR_sampleorder.pdf 16
DNR Order forms, bracelets and necklaces can be ordered online through the Department's vendor at www.health.state.pa.us/pdf/ DNR_orderform4.pdf
Related items (which must be ordered in increments of 50 pieces per item) include DNR card holder and 30-inch bead chain, DNR ID wristband, DNR order form and DNR cards.
APPENDIX TO ARTICLE from the Pennsylvania Department of Health Web site:
In June of 2002, Pennsylvania enacted the Do-Not-Resuscitate Act (DNR Act) (P.L. 409, No. 59) (20 P.S. §§ 54A01-54A13). The DNR Act empowers a terminally ill person or the person's surrogate to secure an out-of-hospital do-not-resuscitate (DNR) order, bracelet or necklace that directs emergency medical services (EMS) personnel in the out-of-hospital setting not to provide the person with CPR in the event of the person's cardiac or respiratory arrest. The DNR Act also specifies the circumstances under which the surrogate of a person who issued an advance directive for health care is able to secure a DNR order, bracelet or necklace for the person if the person becomes permanently unconscious. These provisions, supplemented by Department of Health regulations (28 Pa. Code §§ 1051.1-1051.101), are effective March 1, 2003. This guide will provide information to patients, families, and physicians in regard to out-of-hospital DNR orders, bracelets and necklaces now authorized by Pennsylvania law. What is an out-of-hospital do-notresuscitate (DNR) order? An out-of-hospital do-not-resuscitate (DNR) order is a written order that is issued by an attending physician that directs EMS providers to withhold CPR from the person in the event of cardiac or respiratory arrest. Thus, if an ambulance is called to attend to a person for whom an outof-hospital DNR order has been
issued and the ambulance crew is shown a copy of the out-of-hospital DNR order with original signatures, or observes that the person is wearing an out-of-hospital DNR bracelet or necklace, the ambulance crew will not attempt CPR. What does "cardiac or respiratory arrest" mean? Cardiac or respiratory arrest refers to the process that occurs when a person's heart or breathing, or both, stop due to heart failure. What is CPR? CPR -- cardiopulmonary resusci- tation -- refers to the medical procedures used to restart a patient's heart and breathing when the patient suffers heart failure. CPR may involve simple efforts such as mouth-tomouth resuscitation and external chest compression. Advanced CPR may involve insertion of a tube to open the patient's airway or to assist breathing, injection of medications, or providing an electrical shock (defibrillation) to resuscitate the heart. Why would a person want an out-ofhospital DNR order? CPR, when successful, restores heartbeat and breathing and allows persons to resume their previous lifestyle. The success of CPR depends on the patient's overall medical condition. Age alone does not determine whether CPR will be successful, (Continued on Page 17)
Article: Do-Not-Resuscitate Documents Promulgated by Pennsylvania Dept. of Health (Continued from Page 16) although illnesses and frailties that go along with age often make CPR less successful. When persons are seriously ill or terminally ill, CPR may not work or may only partially work, leaving the patient brain-damaged or in a worse medical state than before the heart stopped. To avoid this possibility, some patients prefer to be cared for without aggressive efforts at resuscitation. Also some persons with terminal conditions perceive death by cardiac or respiratory arrest to be a natural conclusion of their life and simply do not wish to receive CPR to prolong their life. Additionally, for the same reasons, some persons may not want to receive CPR should they become unconscious without a known medical possibility of returning to consciousness. Who can request an out-of-hospital DNR order? A person who is in a terminal condition who is 18 years of age or older or, if under 18 years of age, has graduated from high school, has been married or is emancipated may request an out-of-hospital do-notresuscitate (DNR) order. The surrogate of a person may also request an out-of hospital DNR order for a person who meets these requirements, or for a person in a terminal condition who is under 18 years of age and does not otherwise qualify to ask for an out-ofhospital DNR order. Also, if a person has executed an advance directive for health care that states that no CPR or no life-sustaining procedure shall be provided to the person should the person become permanently unconscious and experience cardiac or respiratory arrest, or if the advance directive designates a surrogate to make medical care decisions should the person become permanently unconscious and experience cardiac or respiratory arrest, the person's surrogate may request an out-of hospital DNR order for the person.
What does "in a terminal condition" mean? The term "terminal condition" is defined in the DNR Act as an incurable and irreversible medical condition in an advanced state caused by injury, disease or physical illness which will, in the opinion of the attending physician, to a reasonable degree of medical certainty, result in death regardless of the continued application of life-sustaining treatment. The attending physician must make the determination that the person is in a terminal condition before the physician may issue an out-ofhospital DNR order. What does "permanently unconscious" mean? The term "permanently unconscious" is defined in the DNR Act as a medical condition that has been diagnosed in accordance with currently accepted medical standards and with reasonable medical certainty as total and irreversible loss of consciousness and capacity for interaction with the environment. The term includes, without limitation, a persistent vegetative state or irreversible coma. In order for the attending physician to issue an out-of-hospital DNR order for a permanently unconscious person, the person must have previously executed an advance directive that either provides that no CPR be administered in the event of the person's cardiac or respiratory arrest if the person becomes permanently unconscious, or designates a surrogate to make that decision under those circumstances. What does "surrogate" mean? For purposes of the DNR Act, a surrogate is an individual who has, or individuals who collectively have, legal authority to request an out-ofhospital DNR order for the person or to revoke that order. One example of a surrogate is a parent of a child in a terminal condition who is under 18 years of age and who is not emancipated and who has not graduated high school or been married. Another example is a court-appointed guardian for an adult who is in a terminal condition and who the court
concludes is unable to meet essential requirements for his or her Physical health or safety because the person does not have the ability to receive and evaluate relevant information effectively and communicate relevant decisions. These are two examples of persons having authority to act as a surrogate under the DNR Act. There are other examples. They cannot all be identified here. It is best to request assistance from private legal counsel if you have a question regarding who can serve as a surrogate for another person under the DNR Act. What is an advance directive for health care? An advance directive for health care is executed by a person under the Advance Directive For Health Care Act (20 Pa. C.S.A. §§ 5401-5416). Under Pennsylvania law, an individual of sound mind who is 18 years of age or older or who has graduated from high school or has married or is emancipated may execute a declaration pertaining to that person's health care governing, among other things, the withholding of life-sustaining treatment. The declaration must be signed by the declarant, or by another individual at the direction of the declarant, and must be witnessed. The advance directive may be presented by a surrogate to an attending physician who may then issue an outof-hospital DNR order based on the advance directive if the physician determines that the person is permanently unconscious. The advance directive may name a particular person to act as surrogate to make the decision that no CPR be provided in the event of the person's cardiac or respiratory arrest if the person becomes permanently unconscious. Who can issue an out-of-hospital DNR order for a person? Only the person's attending physician may issue an out-of-hospital DNR order for that person. Who is an attending physician? An attending physician is the physician who has primary responsibility for the treatment and care of the (Continued on Page 18) 17
Article: Do-Not-Resuscitate Documents Promulgated by Pennsylvania Dept. of Health (Continued from Page 17) person. More than one physician may have primary responsibility for the medical care and treatment of a patient. A physician who is requested to issue an out-of hospital DNR order for a patient needs to make a good faith judgment as to whether the physician is an attending physician of the patient based upon the medical care the physician provides the patient. If the physician determines that the circumstances of the physician-patient relationship do not enable the physician to make that determination, the physician should attempt to supplement that knowledge with information the physician secures after making reasonable inquiries of the patient or the patient's surrogate regarding the medical care the patient is receiving from other physicians. Who is required to comply with an out-of-hospital DNR order? The DNR Act requires EMS providers to comply with an out-ofhospital DNR order. Who are EMS providers? EMS providers are individuals licensed, certified or recognized under the Emergency Medical Services Act to provide medical care on an emergency, out-of-hospital basis (35 P.S. §§ 69216934). They are often associated with ambulance services that are licensed to provide emergency medical care and transportation. EMS personnel who administer emergency treatment include EMTs (emergency medical technicians), EMT-paramedics (paramedics), prehospital registered nurses, ambulance attendants, first responders and health professional physicians. EMS providers also include individuals given Good Samaritan civil immunity protection under Pennsylvania law when using an automated external defibrillator. Physicians who provide medical command to EMS providers must also honor an out-of-hospital DNR order when appraised of it by an EMS provider. 18
If a person has executed an advance directive for health care, does an outof-hospital DNR order also need to be issued? No, but it is easier for an EMS provider to comply with a person's decision to not receive CPR should the person be in a terminal condition or become permanently unconscious if the person has an out-of-hospital DNR order. An advance directive for health care does not permit an EMS provider to withhold CPR unless the provider first contacts and secures approval from a physician who provides the EMS provider with medical direction. While an EMS provider is waiting for the physician's direction, the EMS provider is obligated to initiate CPR even if contrary to the person's wishes. However, if an out-ofhospital DNR order has been issued, EMS providers do not have to contact a physician prior to withholding CPR. In addition, the DNR Act provides for an out-of hospital DNR bracelet or necklace that the person may wear to quickly communicate to EMS providers that an out-of-hospital DNR order has been issued. This alleviates the necessity for locating the actual order. What if both an advance directive and an out-of-hospital DNR order are present when EMS providers arrive to assist a person with cardiac or respiratory arrest? The EMS provider will comply with the out-of-hospital DNR order (or bracelet or necklace). . May an attending physician issue an out-of-hospital DNR order for a patient who is pregnant? Yes, but in order for the attending physician to issue an out-of-hospital DNR order, additional requirements apply. An obstetrician must also examine the patient and both the attending physician and the obstetrician must certify on the patient's medical record that, to a reasonable degree of medical certainty, the provision or life-sustaining treatment will have one of the following consequences: (i) They will not maintain the pregnant woman in such a way as to per-
mit the continuing development and live birth of the unborn child. (ii) They will be physically harmful to the pregnant woman. (iii) They will cause pain to the pregnant woman that cannot be alleviated by medication. What if there is a question about the validity of an out-of-hospital DNR order at the time of cardiac or respiratory arrest? If an EMS provider is uncertain regarding the validity or applicability of the out-of-hospital DNR order, bracelet or necklace, the provider will administer CPR in the event of a person's cardiac or respiratory arrest. In such a case, the EMS provider must initiate CPR unless the physician under whose direction the provider functions directs the withholding of CPR. That physician shall ask the provider to explain the reason for uncertainty. Based upon the information provided, the medical command physician shall make a good faith assessment of whether the described circumstances constitute a revocation, and then direct the EMS provider to withdraw or continue CPR based upon that assessment. How can uncertainty be avoided regarding whether an out-of-hospital DNR order should be followed? For an out-of-hospital DNR order to be effective, it needs to be displayed with the person. However, the best way to ensure that the order will be followed is for the person to wear an out-of-hospital DNR bracelet or necklace. If an EMS provider sees an out-of-hospital DNR order in a remote location or a hidden place such as a dresser drawer, or observes an out-of-hospital DNR bracelet or necklace not on the person, the EMS provider may believe that the person or the person's surrogate has acted to revoke the order, or may be uncertain regarding whether the person or surrogate acted to revoke the order. Having just an order will not prevent unwanted CPR if the order is not immediately available and presented to an EMS provider when the person experiences cardiac or respiratory (Continued on Page 19)
Article: Do-Not-Resuscitate Documents Promulgated by Pennsylvania Dept. of Health (Continued from Page 18) arrest. Wearing a bracelet or necklace increases the likelihood that an EMS provider will be aware of the person's wishes in the event an EMS provider is called to attend to the person. Does an out-of-hospital DNR order prevent EMS providers or other health care providers from providing other treatment? No. An out-of-hospital DNR order is only an order to an EMS provider not to provide CPR It does not relate to any other treatment. In fact, an EMS provider may offer care that is intended to provide comfort and alleviate pain as ordered by the medical command physician who directs the EMS provider. Is a hospital required to comply with an out-of-hospital DNR order? No. An out-of-hospital DNR order is not effective when the person is in the hospital, unless an EMS provider has been dispatched at the hospital's request, to provide emergency medical services to the patient in the hospital. It is likely that the hospital will have other procedures in place for the issuance of a DNR order. However, in all other settings, including personal care facilities and nursing facilities, EMS providers, if they are summoned, are required to comply with out-of-hospital DNR orders. Also, EMS providers are not compelled to recognize DNR orders that do not meet the appearance requirements as set forth in the DNR Act and as otherwise prescribed by the Department. Persons who leave a facility such as a nursing home or a hospital should be sure to obtain an out-of-hospital DNR order from their attending physician if they want EMS providers to be aware of their wishes. May an out-of-hospital DNR order be revoked? Yes. An out-of-hospital DNR order may be revoked by the person without the physician's approval or knowledge. Revocation may be
accomplished by destroying or not displaying the order, bracelet or necklace, or by conveying the decision to revoke the out-of-hospital DNR order verbally or otherwise at the time the person experiences respiratory or cardiac arrest. Neither the person's physical nor mental condition at that time will be considered to void the patient's decision to revoke the outof-hospital DNR order. May a surrogate revoke an out-ofhospital DNR order? A surrogate may revoke an out-ofhospital DNR order only if the out-ofhospital DNR order was issued at the request of a surrogate. A person who is generally authorized to act for another person may not revoke an out-of-hospital DNR order that was requested by the person. In addition, a surrogate who acted as the person's surrogate when requesting an out-ofhospital DNR order may not revoke the order if the surrogate loses the legal authority to serve as the person's surrogate. However if a person's surrogate requested an out-ofhospital DNR order for the person, and then is later replace by another surrogate, the replacement surrogate does have the authority to revoke the out-of-hospital DNR order. An example of this would be a court-appointed guardian asking for an out-of hospital order for a person and that court-appointed guardian later being replaced by another court-appointed guardian. What if it is determined that the diagnosis that the person is in a terminal condition or permanently unconscious was in error? The attending physician will attempt to contact the person to ask the person to return the DNR order, bracelet and necklace to the physician for destruction by the physician. How does a person or the person's surrogate obtain an out-of-hospital DNR order? The person or surrogate must contact the person's attending physician and request an out-of-hospital DNR order. The attending physician will determine if the person qualifies for
an out-of-hospital DNR order and, if the person does qualify, the attending physician may issue the order to the person or to the surrogate. The attending physician must issue the out-of-hospital DNR order on a form that is available from the Department's vendor. Before completing, signing and dating an out-ofhospital DNR order, the attending physician will ensure that the person is identified in the order, that all other provisions of the order have been completed, and that the person or the surrogate, as applicable, has signed the order. How does a person or the person's surrogate obtain an out-of-hospital DNR bracelet or necklace? In addition to issuing the order, the attending physician also may secure a bracelet or necklace, or both, for the person, if desired. The value of these items is that when the person wears the bracelet or necklace, EMS providers will be able to easily identify the fact that an out-of-hospital DNR order exists for the person. The physician will purchase the bracelets and necklaces from the Department's vendor and may charge the patient a fee for the item or items. The attending physician must keep a copy of the out-of-hospital DNR order in the patient's medical record and document whether a bracelet or necklace or both were provided. Who is the Department's vendor? The Department's vendor is the Phillip Levin Company, 3301 Hoffman Street, Ste. C, Harrisburg, PA. 17110. The attending physician may contact the vendor at (717) 2338844. What if I wear a bracelet or necklace that is not approved by the Department? EMS providers are not authorized to comply with an out-of-hospital DNR order, bracelet or necklace that has not been approved by the Department. This includes out-ofhospital DNR orders, bracelets or necklaces issued under other states' laws, unless those states' out-of- (Continued on Page 20) 19
Article: Do-Not-Resuscitate Documents Promulgated by Pennsylvania Dept. of Health (Continued from Page 19) hospital DNR requirements have been approved by the Department. Currently, no other state's out-ofhospital DNR order, bracelet or necklace has been approved by the Department. What if the attending physician refuses to issue an out-of-hospital DNR order? If the attending physician is not willing to issue an out-of-hospital DNR order, the physician must explain the reason to the patient or the surrogate, as appropriate. The physician shall explain that an out-of-hospital DNR order may be issued only by a physician who has primary responsibility for the treatment and care of the patient. The physician shall offer to assist the patient or surrogate to secure the services of another physician who is willing to issue an order for the patient and who will undertake primary responsibility for the treatment and care of the patient in addition to or instead of the attending physician. 20
ARTICLE: Using AIA Contract Documents
By Arnold B. Kogan This article deals with the use of the American Institute of Architects (AIA) construction contract documents. These form documents are the standards for the construction industry, but there are others, such as those published by the Associated General Contractors of America and by private publishers. Rather than deal with each and every significant clause in the various documents published by the AIA, this article addresses several key provisions and explains how these clauses may differ from current Pennsylvania law, which would normally be enforceable against the parties in a commercial transaction or in a consumer (homeowner) transaction. The documents discussed are AIA Document A101-1997, Agreement between the Owner and Contractor where the basis of payment is a STIPULATED SUM; AIA Document A201-1997, General Conditions of the Contract for Construction; AIA Document A5111998, Guide for Supplementary Conditions (contains supplemental language); and AIA Document B1411997, Standard Form of Agreement Between Owner and Architect with Standard form of Architect's Service. AIA Contract Documents Electronic Format Software 3.0 Plus The seminar given at the Real Property Section's retreat included a short demonstration of the software published by the American Institute of Architects, which includes all forms that the AIA publishes. It showed how to use strikeouts or additions in the form of an addendum to change the language of the forms. In the construction field, and as defined by the AIA, the word "addendum" standing alone usually means revisions or clarifications to Arnold B. Kogan is with Goldberg, Katzman & Shipman P.C., Harrisburg.
the bid instructions that are issued in a timely manner prior to the closing of the bids. An "addendum to (printed) contract" in legal terms is a document prepared and executed at the same time as the printed contract form and attached to that printed form as additional pages. As is the case for most standard forms electronically published by trade associations, the AIA software does not allow you to actually change the language in the document, unlike the forms by private publishers which are published in WordPerfect or Microsoft Word format allowing you to change the language or incorporate their language in your own documents. The AIA software merely allows you to strike out language by overtyping a line through the words you wish to delete (i.e. Architect shall) and substitute new language in the form of an addendum which is signed simultaneously with the printed portion of the document (both the addendum and the printed form have signature pages, or the addendum at least has places for initials and date to prove it was part of the original agreement). This is reasonable because it is important for the other party to know what you are changing. The use of redlining (tracking issues-metadata disclosures) is fine where the parties exchange electronic documents or take the trouble of marking up changes. Print two copies of the agreement containing the strikeout so that each is technically an original, and send one of them to the other party. Verbalize the changes in the addendum. Where strikeouts are forced, the other party can clearly see what changes were being made without having to read through the entire agreement. This assumes, of course, (Continued on Page 21)
Article: Using AIA Contract Documents (Continued from Page 20) that a clear copy is sent to the other party. Where documents containing strikeouts are copied, and the other side is given a second or third generation copy, the strikeouts may be obscured. This is especially the case where a copy is sent via facsimile. To avoid this, print two copies of the agreement containing the strikeout so that each is technically an original, and send one of them to the other party. Verbalize the changes in the addendum (e.g., "Paragraph 3.2 is amended by deleting the word "may" and substituting the word "shall" so that the paragraph reads as follows:"). This will increase the size of the addendum, but avoids confusion. If a paragraph is deleted by a strikeout, manually drawing a large "X" through it also makes the deletion clear when copied. There is an economy of scale by using standard documents, but the integrity and efficiency of a standard contract system depends upon each party knowing where the changes have been made to the standard documents rather than having to reread entire documents and make comparisons. In using an addendum, the drafter should be careful to coordinate the language of the addendum with the remaining language (language not being deleted) of the printed form to which it is attached. In the case of a conflict, the addendum will govern over the printed form. Musko v. Musko, 548 Pa. 378, 697 A.2d 255 (1997);12 Pa. Law Encycl., Contracts § 160 (2001). This makes sense, because the parties have usually focused on the issues addressed in the addendum, but may have missed the conflicting language in the form, particularly one as voluminous as AIA Document A201-1997, General Conditions of the Contract for Construction which consists of 44 singlespaced pages, not counting the instruction pages. Potential conflicts are reduced by meticulously using the printed index to the form to find language dealing with the issues addressed in the addendum or related to those addressed in the addendum
and modifying or deleting it accordingly. By referencing the language in the addendum to particular paragraphs in the General Conditions dealing with related matters, conflicts often become apparent and are avoided. There is a rule of law that, in the case of ambiguity, the contract provisions are construed against the drafter. Restatement of Contracts 2nd, § 206. Pennsylvania follows this rule. RKO-Stanley Warner Theatres, Inc. v. Graziano, 467 Pa. 220, 355 A.2d 830 (1976). In the case of the agreement between the architect and owner, the use of the AIA Document B-141 by the architect would likely make the architect the drafter because it is the architect's trade organization that drafted the agreement. Where an owner supplies the AIA documents for execution by the contractor, the owner could be treated as the drafter for the purposes of this rule. However, since the various trade associations representing the interests of both contractors and owners have had input into these standard documents, the courts may be reluctant to treat the owner as the drafter, especially where there are significant negotiated provisions appearing in an addendum. In fact, this rule has been disregarded where both parties have jointly negotiated the agreement. Kozura v. Tulpehocken Area Sch. Dist., 568 Pa. 64, 791 A.2d 1169 (2002); Restatement of Contracts 2nd, § 203. Title Work A title abstract showing easements and restrictive covenants (including setback lines imposed by recorded plans, especially if more restrictive than current zoning or subdivision ordinances) should be obtained before any architectural, engineering or survey work is done so the easements can be plotted on the plans, and the building is appropriately situated for the most economical use of the existing utilities and to avoid encroaching on legal rights-of-way or adjoining owners' properties. AIA Document B141-1997, Standard Form of Agreement Between Owner and Architect with Standard form of Architect's Service, ¶2.2.1.2 imposes the duty upon the owner "to furnish
surveys to describe the physical characteristics, legal limitations and utility locations for the site of the project, and a written legal description of the site." Where a land development and/or a subdivision is involved, the required plans for municipal approval under the Pennsylvania Municipalities Planning Code, 53 P.S. § 10503, and implementing ordinances will, together with the title abstract, provide enough information to fulfill this duty. Contractor's Right Evidence of Adequate Financing The owner is now required under AIA Document A101-1997, ¶2.2.1, to provide "reasonable evidence" of adequate financing for the project to the contractor. Does that mean the contractor is entitled to receive a copy of the complete commitment letter given by the bank to the owner, even a full copy of the construction loan agreement? Or, should there be some standard summary letter that can be given to the contractor from the bank to indicate that financing is available? The AIA's Commentary on AIA Document 201-1997, p. 16, gives a commitment letter as an example of evidence that meets this requirement. The Associated General Contractors of America, the American Subcontractors Association and the Associated Specialty Contractors suggest in their Guideline on Owner's Ability to Pay that the invitations to bid contain statements that the "owner has made sufficient financial arrangements for the completion of the project and administrative arrangements for timely disbursement of every payment, including change orders, and claims." That guideline further states, "Bidders should be invited to make inquiry about these arrangements so that they may satisfy themselves about financial details. Inquiries from contractors who have been invited to bid the project should be answered quickly and candidly by the owner or its construction lender." Since lenders generally insist that a stipulation against liens be filed prior to the commencement of construction, the contractor's pay- (Continued on Page 22) 21
Article: Using AIA Contract Documents (Continued from Page 21) ment depends upon the financing. The AGC has published an Owner Financial Questionnaire (AGC Form 690.1, 1999) for a contractor to obtain the necessary information from the owner. The contractor is generally excluded from being a third-party beneficiary of a construction loan agreement. (See for example, Multistate Construction Loan Agreement ­ SingleFamily -- FAnnie Mae Homestyle Model Document Form 3735 11/01, ¶4.9). Furthermore, a prudent lender will make it clear in any letter it gives to the contractor in order to assist the owner in meeting the owner's obligations under AIA Document A-1011997, ¶2.2.1, that the lender is reserving all of its rights under the construction loan agreement to withhold payment and that the contractor, nor any of its subcontractors or materialmen are third-party beneficiaries under that agreement. On the other hand, the customary lender-prepared Assignment of Construction Contract provides that the lender will be responsible for payment of work done after it takes over a project. See James A. Douglas and Rosa Koppel, Real Estate Financing Forms Manual, ¶3.07 [7] (1985). Other protections the contractor can negotiate for are joint checks and payment and performance bonds. The contractor's surety, if it pays the subcontractors, has right over even secured creditors of the contractor for retainage and other sums held by the owner. In re Modular Structures, Inc., Debtor, First Indemnity of America Insurance Company v. First Fidelity Bank, N.A., 27 F.3d 72 (3rd Cir. 1994). This preference is of limited protection, because a contractor financially most likely took at least a month's payment from the owner and then did not pay its subcontractors. There are criminal sanctions and restitution orders available against a contractor who falsely states under oath on the Application and Certificate for Payment, AIA Document G702 that he or she has paid for all work for which previous certificates for pay- 22
ment have issued and payment received from the owner. Pa. Criminal Code, 18 Pa.C.S. §§3932, 4903(b). However, if the contractor has dissipated his or her funds, that remedy is limited. Ownership of Plans, Record Documents The AIA Document B141-1997, Standard Form of Agreement Between Owner and Architect with Standard form of Architect's Service, ¶1.3.2.3, merely grants the owner a license to use the plans and prohibits the owner from using the plans in any alteration or addition to the building without the consent of the architect. Subparagraph 1.3.2.4 requires a separate agreement if the architect is required to supply the owner with the plans in electronic form. See also AIA Document A101-1997, Agreement between the Owner and Contractor where the basis of payment is a STIPULATED SUM, ¶1.6.1. The plans are also protected by copyright under the United States Copyright Act, 17 U.S.C. §102(a)(8). See United States Copyright Office, Copyright Claims in Architectural Work (Rev. June 1999). Here the issue is whether or not the architect is assuming unreasonable exposure to liability. A vertical expansion depends upon the structural support underneath the addition. This is less of a problem in a horizontal expansion such as an additional wing, although the tie-in to the existing structure will depend upon the support of the original walls. Of course, if an expansion was intended, the original plans and existing structure should support this. A more reasonable demand of the owner is the right to use the plans at any time for renovation of the existing structure. In particular, to use the original plans for providing the dimensions is not an unreasonable request by the owner. In leasing situations, it is not unusual for an owner to need a certification of the square footage of the building, or to need copies of portions of the floor layout plans for sales brochures or lease exhibits. These should be routinely included by an addendum to B141. See AIA Document D101, Methods of
Calculating the Area and Volume of Buildings. AIA Document A101-1997, Agreement between the Owner and Contractor where the basis of payment is a STIPULATED SUM, ¶3.11.1 imposes upon the architect the duty of maintaining a record file on the contractor that will be turned over to the architect to give to the owner upon final completion. This record "consists of record documents, and the detailed one record copy of the drawings, specifications, addenda, change orders and other modifications, in good order and marked currently to record field changes and selections made during construction, and one record copy of approved shop drawings, product data, samples and similar required submittals." Changes in dimensions should be shown on the record plans as they will be needed for leasing or future alterations. On larger projects, the Architect's Agreement may require the architect to update his or her electronic files to reflect the above field changes and selections. Just as in the software industry, purchasers of custom software insist on the source code being escrowed for accessibility in case the software developer is no longer available due to death, incapacity or bankruptcy. Owners should contract to receive from the architect an electronic copy of the plans of a complex building, or alternatively, have some escrow arrangement for obtaining a copy in the event the architect is no longer available. Delegation of Design Services and Shop Drawings The 1997 revision to AIA Document 201, General Conditions, ¶3.12.10, in a significant but controversial change from the prior provision, now explicitly allows delegation of design services to the contractor, thus recognizing the reality that many building systems and components are now designed by persons other than the project architect. The subcontractors, such as those providing electrical, mechanical or fire protection systems, may be required to submit detailed plans that they have (Continued on Page 23)
Article: Using AIA Contract Documents (Continued from Page 22) designed and sealed by their own retained licensed professionals. This is very common in negotiated construction contracts where there is a general contractor who has a close working relationship with unaffiliated electrical and mechanical contractors. Of course, design build contracts routinely integrate the design services with the construction services. Should such design service be required of the contractor, it should be included in the bidding instructions and specifications, as well as in AIA Document 101, Agreement between the Owner and Contractor where the basis of payment is a STIPULATED SUM, as a supplemental condition included in the addendum and should have coordinating language in AIA Document B141-1997, Owner's Agreement with Architect. Where design services have been assumed by the contractor, the owner and contractor need to make sure the contractor's liability insurance covers these services. He or she will want to obtain a certificate of professional liability insurance from any design professional retained. Shop drawings are drawings, diagrams, schedules and other data specially prepared for the work by the contractor, subcontractor, sub-subcontractor, manufacturer, supplier or distributor to illustrate some portion of the work. AIA Document A201, General Conditions, ¶3.12.1. These are submitted to the architect for approval. Shop drawings could include items such as details of a circular staircase, special cabinetry, doors or windows. They fill in and supply details to the architect's drawings. They are not the same as delegated design work for a complete system described the paragraph above. They are, however, important records that will provide information necessary to the future maintenance and alteration of the project and are part of the record documents as discussed above.
Approval of Subcontractors, Privity Paragraph 5.2 of AIA Document A201, General Conditions gives the owner and architect veto power (reasonable objection) over the selection of the subcontractors. But, if the subcontractor was "reasonably capable of performing the work," the contract sum and contract time will be adjusted. Paragraph 5.2.2 gives the contractor the right to refuse to contract with anyone to whom the contractor has a "reasonable objection." In the case of public entities covered by the Separations Act, 53 P.S. § 1003, there must be separate bids and contracts for plumbing, heating, ventilating and electrical work; so those contracts for those types of work are made directly with the owner rather than through a subcontractor. There are exceptions for certain public projects under the Capital Facilities Debt Enabling Act, the Act of Feb. 9, 1999 (P.L. 1, No. 1), 72 P.S. § 3919.318(f). See Pleasant Hills Construction Company, Inc. v. Public Auditorium Authority of Pittsburgh, 567 Pa. 38; 784 A.2d 1277 (2001). See also the Commonwealth Procurement Code, 62 Pa.C.S. § 322(6). In projects where there are these direct contracts with the trades, the owner has privity of contract and can make direct claims against those contractors rather than going against the general contractor for the deficiencies in the subcontracted work. Where there is no such direct contractual relationship, the owner does not have the right to recover directly against subcontractor, because there is no privity of contract. Manor Junior College v. Kaller's Inc., 352 Pa. Super. 310, 507 A.2d 1245 (1986); see also, Scarpitta v. Weborg, 530 Pa. 366, 609 A.2d 147 (1992), Borough of Berwick, v. Quandel Group, Inc., 440 Pa. 367, 655 A.2d 606 (1995), appeal denied 544 Pa. 641, 664 A.2d 971. Of course, if the contract between the general contractor and subcontractor makes the owner a third-party beneficiary of that subcontract, the owner would have a direct enforceable right against the subcontractor. Manor Junior College, supra, and Scarpitta, supra. AIA Document A401-1997, Standard Form of Agreement Between Contractor and Subcontractor takes steps in mak-
ing the owner a third-party beneficiary. First, Subparagraph 4.6.1 requires the subcontractor to indemnify and hold harmless the owner as well as the contractor and architect against third-party claims related to the performance of the subcontractor's work. Second, Subparagraph 4.5.1 provides the subcontractor's warranty directly to the owner. Damages The waiver of the consequential damages will be discussed along with the liquidated damages clause, the payment penalties and other similar matters. AIA Document 201-1997, ¶ 4.3.10 waives consequential damages. It is important to review this section carefully, because it delineates items that specifically are considered consequential damages for the purpose of this waiver. This waiver is enforceable in a commercial setting. Hwy. and Bridge Authority, 408 Pa. 195, 182 A.2d 911 (1962). It may not be enforceable in a consumer transaction such as the construction of a person's residence. See Carll v. Terminix Int'l Co., 2002 Pa. Super. 44, 793 A.2d 921 (2002); Lythe v. Citifinancial, 2002 Pa. Super. 327, 810 A.2d 643 (2002). AIA Document 201-1997, ¶ 4.3.10 waives consequential damages. It is important to review this section carefully, because it delineates items that specifically are considered consequential damages for the purpose of this waiver. Because of this waiver, an owner may wish to have a liquidated damages clause to cover the situation where the project is not completed by the time set in the contract. AIA Document 101-1997, Agreement between the Owner and Contractor, ¶3.3 has a place for inserting consequential damages. AIA Document A511-1998, Guide for Supplementary Conditions, discusses such clauses and provides language that would instead be inserted as ¶9.11 supplementing the general conditions after the last para- (Continued on Page 24) 23
Article: Using AIA Contract Documents (Continued from Page 23) graph in Article 9 of that document, which is ¶9.10. As pointed out in the guide, the liquidated damages may not be a penalty but must reasonably reflect the costs from a delay or other failure to perform. The liquidated damages clause should also not conflict with the mutual waiver of consequential damages in Subparagraph 4.3.10. Pennsylvania will not enforce liquidated damage clauses that are found by the court to be a penalty rather than a reasonable attempt to quantify actual damages. Pantuso Motors, Inc. v. CoreStates Bank, N.A., 568 Pa. 601, 798 A.2d 1277 (2002). Scope of Work, Change Orders and Construction Change Directive Each project has scope of work to define the general range and quantity of work to be done by the contractor. Work required in excess of that scope of work will usually require an adjustment in the contract price and sometimes an adjustment in the date set for substantial completion of the project. The scope of work for a general construction contract, where the general contractor is responsible for building the entire project with his or her own labor and subcontractors, is set forth in the description of the project on page 1 of AIA Document A101-1997, Agreement between the Owner and Contractor where the basis of payment is a STIPULATED SUM. The plans and specifications further define what is being purchased in goods and services from the contractor. During the bidding process, addenda are issued in answer to questions raised by contractors reviewing the bid documents. In this manner, all bidders are treated fairly by equally receiving the same information and basis upon which to bid. Where these addenda are changes to the specifications or plans, they become contract documents under Article 1 of the above Agreement A101-1997 and are enumerated in Article 8 of the agreement. An attorney preparing or reviewing an AIAbased construction contract needs to inquire and obtain copies of all of the 24
items listed in Article 1 to make sure they are identified properly in Article 8. In reviewing the documents for the purpose of settlement of a claim, it is important to review all portions of the contract documents that deal with the same or related matters. The documents are intended to be complementary, but in the case of a conflict between the plans and the specifications, what is required by one is considered by all contract documents. AIA101-1997, ¶ 1.2.1. An attorney preparing or reviewing an AIA-based construction contract needs to inquire and obtain copies of all of the items listed in Article 1 to make sure they are identified properly in Article 8. Changes in the work after the execution of the contract are accomplished by a change order (AIA Document G701-1997), change directive (AIA Document G714-1997), or an order for a minor change in the work in accordance with Article 7 of the AIA101-1997. A change order is "a written instrument, prepared by the architect and signed by the owner, contractor and architect, stating their agreement upon all of the following: (1) change in the work; (2) amount of the adjustment, if any, in the contract sum; and (3) extent of the adjustment, if any, in the contract time." AIA1011997, ¶7.2.1. A contract directive is a written order prepared by the architect and signed by the owner, directing a change in the work prior to an agreement on any adjustments in time or money. AIA101-1997, ¶7.3.1. Paragraph 7.3 sets forth the procedures to be followed in reaching an agreement or settlement that makes the necessary adjustments. However, Subparagraph 7.3.4 requires the contractor to proceed to change the work promptly upon receipt of the directive and sets forth how disputes as to adjustments are raised and resolved. Minor changes in work are issued by the architect and do not affect the contract sum or time. AIA101-1997, ¶7.4. In spite of the language requiring a change order to be in writing, in the
case of private companies or persons, the parties can become bound by an oral change order that is acted upon. Universal Builders, Inc. v. Moon Motor Lodge, Inc., 430 Pa. 530, 244 A.2d 10 (1968). The rule, with respect to public bodies, is different. Here, the change orders must be written unless the contract provides otherwise. Nether Providence Township School Authority v. Thomas Durkin and Sons, Inc., 505 Pa. 42, 476 A.2d 904 (1984). Substantial Completion, Final Completion, Punchlist, Payments The concept of substantial completion is as important as setting a date for effective use of the property, for the release of most of the retainage, and for the running of the statute of limitations. Under Subparagraph 9.8.1 of AIA Document A201-1997, General Conditions of the Contract for Construction, substantial completion is defined as when the "owner can occupy or utilize the work for its intended purpose." The architect makes the determination based on an application by the contractor stating that the contractor has substantially completed the work. The contractor is required to submit with that application a comprehensive list of items to be completed or corrected prior to final payment. The architect's determination is issued on AIA Document G704, Certificate of Substantial Completion. Subparagraph 9.8.4 of AIA Document A201-1997 requires the architect to make a list of all of the items that need to be completed before final payment but do not affect the use of the property so as to delay substantial completion. Before the retainage may be released by the owner, however, the consent of the surety must be obtained (AIA Document A201, ¶9.8.5). The architect uses the list given by the contractor as a starting point and makes adjustments based on the architect's inspection of the work. The architect's list is known as the "punchlist." The Associated General Contractors of America (AGC) has issued a Guideline on Punchlist Procedures for the general contractor to follow. (Continued on Page 25)
Article: Using AIA Contract Documents (Continued from Page 24) Final completion and final payment is made under Subparagraph 9.10.2 of AIA Document A201 when the work is complete and after the contractor submits an "affidavit that payrolls, bill for materials and equipment and other indebtedness that the owner may become responsible have been paid or otherwise satisfied." When this payment is made, there is a waiver of claims, subject to the exceptions listed in Subparagraph 9.10.4, which exceptions include the "failure of the work to comply with the requirements of the contract documents" and the "terms of special warranties required by the contract documents." There is a raging storm over payments to subcontractors. AIA Document A401-1997, Standard Form of Agreement Between Contractor and Subcontractor, ¶11.3, provides that the subcontractor will be paid even where his or her work is not in dispute even though the contractor has not been paid by the owner because of matters not related to the work performed by the subcontractor. The AGC had a joint Standard Agreement Between Contractor and Subcontractor, AGC/ASA/ASC Form 640, with the Associated Specialty Contractors and American Subcontractors Association that had essentially the same provision. However, the AGC members revolted and now generally use AGC Form 655, Standard Form of Agreement Between Contractor and Subcontractor (Where Contractor and Subcontractor Share Risk of Owner Payment). This document is intended to be generally compatible with A201-1997 and AGC 200. The AGC has also published and still has available AGC Form 650, Standard Form of Agreement Between Contractor and Subcontractor (Where Contractor Assumes Risk of Owner Payment). This document is also intended to be generally compatible with AIAA201-1997 and AGC200. AGC Form 650 is similar to AIA Document A401-1997 regarding subcontractor payments. The Pennsylvania Contractor and Subcontractor Payment Act, 73 P.S. § 507(c),
allows the subcontractor's payment to be contingent upon the owner making the progress payment to the contractor, provided the payment terms and procedures are disclosed to the subcontractor before execution subcontract as required by the Act, 73 P.S. § 507(b). There is a one-year correction period under Subparagraph 12.2.2 of AIA Document A2011997, but this does not limit the period to enforce the contractor's warranties or other rights of the owner to enforce the contract documents. Limitation of Time for Claims, Accrual, Statute of Limitations, Statute of Repose There is a one-year correction period under Subparagraph 12.2.2 of AIA Document A201-1997, but this does not limit the period to enforce the contractor's warranties or other rights of the owner to enforce the contract documents. The AIA Document A201-1997, ¶ 13.7.1.1 commences the statutory limitation period as to the work done before the substantial completion date at the substantial completion date. After the final payment, the period begins to run on the date there is failure to correct under an applicable warranty or the date of correction under a warranty. AIA Document A201-1997, ¶13.7.3. This is both similar and different than the applicable Pennsylvania case law. First, Pennsylvania has a statute of repose, 42 Pa.C.S.§ 5536, which sets an outside limit of 12 years from the date of completion of the improvement. Vargo v.Koppers Co., 552 Pa. 371, 715 A.2d 423 (1998); A.J. Aberman, Inc. v. Frank Bldg. Corp., 278 Pa. Super. 385, 420 A.2d 584 (1980). In Northampton County Area Community College v. Dow Chemical, 528 Pa. 502, 598 A.2d 1288 (1991), the court referred to the date of the certificate of substantial completion as the date for beginning the running of the statute of repose. However, this may be dicta because
the court held the statute does not run against the government. Noll by Noll v. Harrisburg Area YMCA, 537 Pa. 274, 643 A.2d 81 (1994), runs the time from the date the whole building is completed, not just a component. This is similar to substantial completion. In Pennsylvania, there is a question in whether the four-year statute of limitations under the Judicial Code, 42 Pa.C.S. §5525(8), or the six-year under the Judicial Code, 42 Pa.C.S. §5527, applies. Gustine Uniontown Assoc. v. Anthony Crane Rental, 2001 Pa. Super 306, 786 A.2d 246 (2001), holds the six-year statute of limitations applies, petition for appeal allowed, 800 A.2d 993 (Pa. June 27, 2002); see Kristie M. Kachuriak, Romeo Revised, Limiting the Statute of Limitations That Applies to Claims for Breach of a Construction Contract, 39 Duq. L. Rev. 551 (2001), concluding the four-year statute of limitations should apply. The Pennsylvania Statute of Limitations runs from the date the defect was discovered or reasonably should have been discovered, not the date of completion (latent defect rule), but, again, the outside limit is the 12-year limit in the Statute of Repose. Romeo and Sons v. P.C. Yezbak and Son, 539 Pa. 390, 652 A.2d 830 (1995), approving A.J. Aberman, Inc. v. Frank Bldg. Corp., supra. It is not clear whether AIA Document A2011997, ¶13.7.1.1, which ignores the rule regarding latent defects, is enforceable in Pennsylvania. Judging from the Superior Court's position in Gustine Uniontown Assoc. v. Anthony Crane Rental, supra, it may not be. Cf. College of Notre Dame of Maryland, Inc. v. Morabito Consultants, 132 Md. App'. 158, 752 A.2d 265 (2000), which upheld a similar provision in AIA Document B141, ¶9.3, ignores the latent defect run. It is even more questionable whether this is enforceable in Pennsylvania in the case of the construction or alteration of the owner's residence. Carll v. Terminix Int'l Co., 2002 Pa. Super. 44, 793 A.2d 921 (2002); Lythe v. Citifinancial, 2002 Pa. Super. 327, 810 A.2d 643 (2002). 25
Real Property, Probate and Trust Law Section Leadership List
Chair Vincent B. Mancini Vincent B Mancini & Associates 414 E Baltimore Pike Media, PA 19063-3808 610-566-8064, FAX 610-566-8265 [email protected] Vice Chair, Real Property Division Frederic W. Clark Ballard Spahr 1735 Market St., 51st Fl. Philadelphia, PA 19103-7599 215-665-8500, FAX 215-864-8999 [email protected] Vice Chair, Probate Division Kirby G. Upright Hanna Young Upright & Catina LLP 300 Stroud Building Stroudsburg, PA 18360 570-424-9400, FAX 570-424-9426 [email protected] Secretary Lawrence S. Chane Blank Rome LLP One Logan Square Philadelphia, PA 19103-6998 215-569-5721, FAX 215-832-5721 [email protected] Assistant Secretary Carol Sikov Gross Sikov & Love PA 1400 Lawyers Bldg., 428 Forbes Ave. Pittsburgh, PA 15219 412-261-4202, FAX 412-261-1455 [email protected] Assistant Secretary Alan David Keiser Land America Financial Group Inc 1700 Market St., Ste. 2110 Philadelphia, PA 19103 215-568-9690, FAX 215-665-3430 [email protected]
Treasurer David E. Schwager Chariton & Schwager 138 S. Main St., PO Box 910 Wilkes-Barre, PA 18703-0910 570-824-3511, FAX 570-824-3580 [email protected] Section Delegate and Immediate Past Chair Neil E. Hendershot Goldberg Katzman & Shipman PC 320 Market St., PO Box 1268 Harrisburg, PA 17108-1268 717-234-4161, FAX 717-234-6808 [email protected] Council Members Timothy F. Burke, Jr. Tener VanKirk Wolf & Moore PC 920 Oliver Bldg., 535 Smithfield St. Pittsburgh, PA 15222-2393 412-281-5580, FAX 412-281-6115 Christopher J. Clements PA Department of Transportation Office of Chief Counsel PO Box 8212 Harrisburg, PA 17105-8212 717-787-3128, FAX 717-772-2741 Daniel B. Evans PO Box 27370 Philadelphia, PA 19118 215-233-0988, FAX 215-893-5388 [email protected] Mark B. Hammond 1720 Wilson Ave Chambersburg, PA 17201 717-264-9381 [email protected] William Charles Mackrides Mackrides Associates 755 N Monroe St Media, PA 19063 610-565-6688, FAX 610-891-1645 [email protected]
Council Members, cont. Matthew Nathan McClure Ballard Spahr 1735 Market St., 51st Fl. Philadelphia, PA 19103-7599 215-864-8771, FAX 215-864-9272 [email protected] Stephan Kasta Pahides McCausland Keen & Buckman Radnor Ct., Ste. 160 259 N. Radnor-Chester Rd. Radnor, PA 19087-5240 610-341-1000, FAX 610-341-1099 [email protected] Stephen Paul Paschall Lovett Bookman Harmon Marks LLP 5th Ave. Place, Ste. 2900, 120 5th Ave. Pittsburgh, PA 15222 412-392-2502, FAX 412-392-2221 [email protected]w.com Kenneth I. Rosenberg Schnader Harrison 1600 Market St., Ste. 3600 Philadelphia, PA 19103-7286 215-751-2000, FAX 215-751-2205 [email protected] Timothy W. Silbaugh Fulton Heck & Silbaugh PC 220 S. Main St., Ste. 305 Butler, PA 16001 724-285-6215, FAX 724-282-8501 [email protected]
26
ARTICLE:
Obtaining Pennsylvania Death Certificates
By Kirby Upright A question has surfaced regarding an attorney's ability to obtain death certificates. This issue is becoming increasingly difficult, prompted, I suspect, by ever-increasing confidentiality issues. The following may help. If not, please notify me at [email protected] pennlawyers.com. The section may have to review this procedure with the Bureau of Vital Statistics in an effort to facilitate an appropriate response to required documents. An efficient method to obtain certified copies of Pennsylvania death certificates is to fax an application to the Division of Vital Records in New Castle and charge the order to a credit card. An additional $7 service fee is charged to use a credit card. Turnaround time is generally five to seven business days. A credit card fax ARTICLE:
application also requires a legible copy of ID (Pa. Driver's License with picture ID is appropriate) for the ordering attorney and the Card Verification Code (CVC) of the credit card. The CVC is the three-digit code printed on the signature panel on the back of Visa and MasterCard debit/credit cards or the four-digit non-embossed code located on the front of American Express cards. Information for faxing an application for certified copies of death certificates in Pennsylvania can be found at www.health.state.pa.us/ vitalrecords. Under "Death Records," click on "Methods of Obtaining a Death Record." Click on "Facsimile Requests." At the bottom of this page, click on "click here" to download the application. Print the application. To complete the application, type the name, address, etc., of the attorney.
For "Relationship to Person Named on Certificate," type "Attorney for Estate." Under "Intended Use of Certified Copy," check "Estate Settlement." Insert the number of copies requested. It is important to have as much information as possible on the decedent: name, date and place of death, Social Security number, date of birth, funeral director, names of parents (not required). Choose the shipping method. A choice other than first-class mail will result in an additional charge to your credit card. Complete the cardholder's name, credit card number, CVC, and expiration date. The attorney must sign the top of the application. Fax the completed application to (724) 652-8951.
Living Trust Scams and Frauds
by Mark Hammond Seth Mendelsohn of the Pennsylvania Attorney General's Bureau of Consumer Protection, Harrisburg, and Sally Hurne of AARP (formerly the American Association of Retired Persons), Washington, D.C., presented a program on living trust scams at the spring retreat on March 6. Living trusts have been excellent estate-planning vehicles when created for the right people in the right circumstances. However, living trusts can be a waste of money for those of modest means. They can often cause new and unanticipated problems in transferring money to heirs. At their worst, living trusts can be scams. Mark Hammond is editor of the section's newsletter. He is with Franklin Real Estate Services and Abstracting Company, Inc., Chambersburg, and is also an adjunct instructor at Wilson College.
In recent years, there has been an explosion of purveyors of living trust documents who exaggerate the cost and delay of probate in an effort to sell their documents, and often other financial service products to the elderly. These salespersons are not attorneys or skilled financial planners, but rather are simply trying to sell a product. There is emphasis on completing the sale in one day in a high pressure situation at the home of the elderly person. Some have even gone so far as to claim that they have been recommended by AARP or have been approved by the Better Business Bureau. Typically these living trust sales representatives make aggressive sales presentations to older persons, often misleading them about the costs and burdens of estate administration. The goal is to make the sale and get the fee, regardless of the appropriateness of a living trust to an individual's particu-
lar circumstances. The state attorneys general and the AARP have taken an interest in ending these scams on older persons. In the past year, the Pa. Attorney General's Office has successfully prosecuted a number of "living trust mills" for unauthorized practice of law, violation of state and federal consumer protection laws (right of rescission), and fraudulent misrepresentation. The individuals and companies involved have been required to pay civil penalties and cancel contracts with consumers who failed to receive the proper notice of cancellation or who requested to cancel their contract. Companies involved have been banned from doing business under the Consumer Protection Law and have been charged with the Unauthorized Practice of Law. They have also had to pay restitution to consumers, and reimburse the costs of investigation. 27
PHOTO REVIEW: Spring Retreat -- March 6, 2003 -- Harrisburg John Eldred (above and in photo at right) led the very popular session on "Counseling and Coaching a Business Through Succession." (See article on Page 30.)
(From left) Jim Rosenstein, Jacqui Lazo and Fred Clark at the session on "Legal Opinion Letters from Borrower's Counsel." 28
(From left) Vince Mancini and Joseph Finkelstein at the "Primer on Title Insurance."
PHOTO REVIEW: Spring Retreat -- March 6, 2003 -- Harrisburg
The Financing of Real Estate Session included representatives from the Department of Revenue to discuss the bulk sales tax. Far right, in bow tie, is Fred Clark, RPPT Finance Committee chair.
(From left) Seth Mendelsohn of the Office of Attorney General, Sally Hurne of the AARP, and Neil Hendershot confer at the session on "Living Trust Abuse."
(Front row, from left) Vince Mancini and Noah Cutler at the general session.
G. Bradley Rainer (standing) presented the Friday session on ethics: "Representing the Wayward Fiduciary." 29
ARTICLE: Family Business Succession: Counseling and Coaching
By Mark Hammond John Eldred of Transition One Associates, Ambler, presented a session on "Counseling and Coaching a Business Through Succession" at the spring retreat on March 6. Eldred cofounded the University of Pennsylvania Wharton School's Family Business Program, which provides training and development for the founder and successor generations of family businesses. As founder and president of the management consulting firm Transition One Associates, Eldred has provided consulting services for clients such as the Campbell Soup Company, EDS, Comcast, and the William Penn Foundation. A major concern to probate attorneys is business succession. Family businesses are a major estate asset and their value is maximized when the business continues as a "going concern." An attorney can be a trusted family advisor -- often working closely with accountants and other professionals -- to many small businesses. Succession planning is a process that begins with a commitment to the permanence of the business. The best succession plans are undertaken in a calm, rational mode without emotional stress. They are best done in a non-crisis context. The illness or disability of a business founder or principal is not the time to begin thinking about business succession. The illness or disability of a business founder or principal is not the time to begin thinking about business succession. When thinking about business succession planning, one should be mindful of the good and bad qualities 30
of a "coach." A good coach is encouraging, supportive, hopeful and fair. A bad coach is selfish, narrow-minded, dictatorial and inflexible. The best coaches use positive reinforcement techniques. It is important to concentrate on competence in management. While business founders are often intuitively brilliant about how they built their business, that gift of intuitive brilliance is not easily delegated or shared. Business succession planning requires that we look to the difference in leadership style and business culture of the next generation. Does the style of the predecessor inhibit succession? Can that style be changed to facilitate the concept of business succession? Business principals must be open to a culture of change, growth and development. While business founders are often intuitively brilliant about how they built their business, that gift of intuitive brilliance is not easily delegated or shared. In the family business, we must consider the credibility and coachability of the candidate for succession. If other people in the business think the candidate for succession is a fool and a drone, that person is not a good candidate for succession. The candidate must be credible and have the ability to manage. In many family businesses, non-family managers may need to be involved. A spirit of partnership and collaboration must be pursued, even if it means giving additional incentives to the non-family manager to secure their participation. Family involvement, whether informally or as the part of a "family council," is important. Such involvement seeks to review the state of the business, provides information and supports the needs of the family
members. In this case, the family council is not a decision-making body, like a corporate board, but rather is an advisory body or a forum for decision rehearsal. Where there are irreconcilable conflicts or differences, it is important to determine if the family is receptive to a mechanism of negotiated solution. Elements of alternative dispute resolution, such as negotiation, mediation and arbitration can work. Business succession planning is the gift that the older generation gives to the younger generations. An attorney can help clients show their families that they care about the survival and prospects of the business. As an attorney you can assist in the process and shepherd the change. Suggested reading: 1. Cohn, Mike. Passing the Torch: Succession, Retirement, and Estate Planning in Family-Owned Businesses. (New York, McGrawHill, 1992) 2. Collier, Peter and David Horowitz. The Fords: An American Epic. (New York, Encounter Books, 2002) 3. Collins, Jim. Good to Great: Why Some Companies Make the Leap ... and Others Don't. (New York, Harper Collins, 2001) 4. Quinn, Robert. Deep Change: Discovering the Leader Within. (New York, Jossey-Bass, 1966)
ARTICLE: Reliable Internet Resources for Real Estate Lawyers
By William Mackrides There are many areas of interest and assistance to real estate practitioners available on the Web. Whether for research, advertising, information retrieval or utilities, these resources are constantly changing. It is important to understand that the Internet is a web of both and fiction, accuracy and inaccuracy, intelligent undertakings and negligent rambling. You must carefully review information before relying upon it. In addition to bookmarking links (shortcuts to Web sites that can be accessed by left clicking your mouse while the cursor is on them) it is wise to cut and paste some information and save it as a word processing document. The reason I suggest this is that Web sites sometimes change or disappear overnight. It is very frustrating to lose one of your resources just when you need it the most. Real estate Internet resources can be organized in many fashions. I have organized some according their local, state or national affiliation, others according to subject matter, i.e. title insurance, tax assessment, mortgage financing, taxes, environmental and so on. Still others are organized according to their use, for instance, research resources, utilities such as mortgage amortization and other calculators, search engines, listservs, document creators and listing services. There are obvious resources such as e-mail and advertising and more elaborate resources such as bulletin boards, newsgroups, chat rooms and listservs. Some Internet terminology that you will need to know about is defined below: William "Chip" Mackrides practices in Media. He is chair of the Real Property Division's Vendors and Purchasers Committee.
· Bulletin board system ( BBS): A system/forum that lets people read each other's messages and post new ones, browse and exchange information. The Usenet system of newsgroups is probably the world's largest BBS. · Hypertext/hyperlink ( link): A highlighted word or graphic in a document that, when clicked upon, takes the user to another page (a related piece of information) on the Internet. · Mailing lists (or Listservs): There are thousands of topicoriented, e-mail-based message bases that can be read and posted to. Users subscribe to the lists they want and can then read and receive messages via e-mail. Mailing lists are operated using listserv software. There are two types of lists: moderated and unmoderated. Moderated lists are screened by a human before being posted to subscribers. Messages to unmoderated lists are automatically forwarded to subscribers without the need for human/ manual intervention. · Usenet: A system of thousands of topicoriented message bases (distributed bulletin boards) called newsgroups. You read the messages by using a program called a newsreader. Most browsers and Internet providers give you access to a newsreader and to certain newsgroups. The newsgroups are organized and named according to a hierarchy, starting general and getting more specific. An example is alt.binaries. pictures.realestate.fsbo, which is the alternative group as opposed to the mainstream -- a binary file means that it does not necessarily contain text only -- with pictures, of real estate -- that is for sale by owner.
For locating resources that I have not acquired from written resources or fellow practitioners, I find search engines to be extremely helpful. Examples of useful search engine sites are www.altavista.com, www.google. com, www.ask.com, www.dogpile. com, www.metacrawler.com, www. lycos.com and www.yahoo.com. These are but a few of probably thousands of search engines on the Web. A search engine is a site that contains a blank field wherein you can type keywords to help locate information you are seeking. There are rules associated with the use of keywords, rules that makes it easier to narrow down the search to your desired information. While many Internet resources are free, others are fee-based. Legal research sites such as www. westlaw.com, www.lexis.com and www.loislaw.com are fee-based while access to many court opinions, acts and statutes are available for free. Your PBA membership includes free access to InCite, an online legal research tool at www.pabar.org. There are a great number of dictionaries, calculators and other tools useful for the real estate law practitioner available on the Web. Many local governments and counties have free or fee-based access to court records, deeds, tax assessments and other information. Multiple listing services are now Internet-based; for example, www.trendmls.com. These services vary by locality. There are also private home listing sites such as www.ushousesearch.net. Useful information and links can be found on law firm or local realtor Web sites, and the Web sites of real estate franchises, state and national realtors associations and the Pennsylvania and American Bar Associations. There are many state resources available in Pennsylvania, such as the Department of State, which will take you to the Corporation Bureau where (Continued on Page 32) 31
Article: Reliable Internet Resources for Real Estate Lawyers (Continued from Page 31)
you can search for information such
as the principles or shareholders of a
business. You can also access the
Department of Environmental
Protection and various state courts.
National sites such as HUD's, at
www.hud.gov, provide useful infor-
mation on many real estate related
subjects such as Real Estate
Settlement Procedures Act (RESPA).
You can go to www.adobe.com
and freely download Adobe Acrobat
Reader, which will enable you to
download Portable Document Format
(PDF) files such as the corporate, part-
nership and limited liability company
forms which are provided free on the
Corporation Bureau site.
Many colleges and law schools
have educational Web sites that con-
tain multitudes of information useful
to real estate practitioners. Some
examples are www.law.widener.edu
and www.law.villanova.edu.
Bar Associations contain great
resources. The Delaware County Bar
Association has a Web site at
www.barristerclub.com,
which
directs potential clients to lawyers
with various concentrations such as
real estate. The site also contains rules
of court and other useful information.
The Pennsylvania Bar Institute (PBI)
at www.pbi.org has an excellent site
with links to many legal resources,
among them real estate related infor-
mation such as the Villanova
Environmental Law Journal, landlord
tenant forms, dictionaries of legal
terms and links to numerous
Pennsylvania laws, regulations,
statutes and legislation (House and
Senate Bills).
Many municipalities now have
Web sites. Some provide building
regulations, zoning codes, land devel-
opment ordinances, and forms online.
Middletown Township, Delaware
County, is one such township, and
can be found at www.
middletowntownship.org.
At www.divorcenet.com/pa/
pa-court.html you will find informa-
tion about all of the Pennsylvania
32
County Courts, courthouses, pro-
thonotaries, clerks and Lawyer
Referral Services.
Updates for all County Rules in
Pennsylvania are provided by the
Administrative Office of the
Pennsylvania Courts, in PDF format
at www.courts.state.pa.us/judicial-
council/local-rules/rulechanges.html
Although most of the forms at
www.uslegalforms.com are not free,
it can still be a great resource for sam-
ple forms, industry links, and legal
summaries. There are links to mort-
gage calculators, tax forms, case law,
uniform acts, consumer info and
more.
Foreclosurefreesearch.com offers a
free trial subscription and bills itself
as the largest foreclosure database.
Other interesting real estate related
links and fore closure information can
be
found
at
www.
realestateforeclosures.net.
Internet Legal Resource Guide
(www.ilrg.com) provides forms,
many interesting links and legal
resources that are helpful to real
estate and other legal practitioners.
Parealtor.org, site of the
Pennsylvania Association of Realtors,
provides information, links, forms
and tools useful to attorneys practic-
ing in this field. Realtor.org, site of the
National Association of Realtors, also
contains helpful information and
links to other real estate related sites.
HSH Associates' site at
www.hsh.com bills itself as the
nation's largest publisher of con-
sumer loan information. It contains
information on lenders, loan rates
and indices, mortgage calculators,
and a multitude of other utilities and
other resources. Kiplinger.com/tools
also contains useful financial calcula-
tors and amortization schedulers.
The American Bar Association's
web site at www.abanet.org is anoth-
er resource for information, listservs,
discussion forums and publications.
Access to resources from their Real
Property, Probate and Trust Law
Section such as "Opinion Letter
Guidelines" and online articles from
Probate and Property Magazine are
invaluable.
(Continued on Page 36)
ARTICLE: Reliable Internet Resources for Probate Lawyers By Daniel B. Evans My first presentation on Internet resources was back in 1995, and a lot has changed since then. In 1995, I had to explain what the Internet was, and how it worked. Now, the use of the word Internet is almost superfluous when discussing research tools and information resources, because the words online and Internet are synonymous to most people. (Who remembers when there were different dial-up numbers for Lexis and Westlaw?) In 1995, it seemed almost magical to find free information on the Internet, and there weren't many sites with statutes, court decisions, regulations, forms or other materials of any real use to estate lawyers in Pennsylvania. Now, we assume that the information is there, and it is often easier to talk about what is still missing than what is there. Web Sites Much of the information available today through the Internet is amazingly new (e.g., retrieving copies of court opinions the same day they are released). Some other information is amazingly old and outdated. So practitioners must take into account the reliability of the source before deciding whether to rely on information on the Web, particularly information from secondary sources. (Continued on Page 33) Daniel B. Evans is a sole practitioner in Philadelphia, a member of the RPPT section's council and chair of the Probate and Trust Division's Office Practice Committee. His e-mail is [email protected]
Article: Reliable Internet Resources for Probate Lawyers (Continued from Page 32) Federal Law · United States Code (law2.house.gov/ and www4.law.cornell.edu/uscode/) Searchable and downloadable version of the U.S. Code prepared by the Office of Law Revision Counsel. · Thomas (thomas.loc.gov/) Maintained by the Library of Congress, this site (named after Thomas Jefferson) provides access to Congressional bills, reports and legislative histories, and well as the text of statutes as finally enacted. · Code of Federal Regulations (law.house.gov/cfr.htm or www.access.gpo.gov/ecfr) Searchable copy of the CFR maintained by the National Archives and Records Administration through the Web site of the U.S. Government Printing Office; the second reference is to the public beta of an "eCFR" that is updated daily to incorporate final regulations published in the Federal Register. · Federal Register (www.gpo.gov/su_docs/aces/ aces140.html) Searchable from 1995 through 2002, and maintained by the U.S. Government Printing Office. · Internal Revenue Service (www.irs.gov) Often difficult to navigate, but provides forms and publications (in PDF format, sometimes fillable), as well as Internal Revenue Bulletins, private rulings and other releases by the IRS. · Federal Court Decisions [Cornell Legal Information Inst.] (www.law.cornell.edu/opinions. html) (See also, Findlaw and other research sites described below.) · United States Tax Court (www.ustaxcourt.gov) Dockets and opinions (in PDF) searchable by party name or case number, as well as court rules.
Pennsylvania Resources · Pennsylvania State Government (www.state.pa.us) Home page for commonwealth, including Constitution, Legislature, and agencies. · Electronic Bill Room (www.legis.state.pa.us/WU01/ LI/BI/billroom.htm) Pending and enacted legislation, with legislative histories, in HTML and PDF formats. · Pennsylvania Code (www.pacode.com) All Pennsylvania regulations. · Pennsylvania Bulletin (www.pabulletin.com) Official Pennsylvania publication of regulations, state and local rules of court, and other administrative news. · Pennsylvania Department of Revenue (www.revenue.state.pa.us) Downloadable instructions forms (in PDF format, some fillable). · Pennsylvania Consolidated Statutes (members.aol.com/StatutesPA/ Index.html) Unofficial, and incomplete, text of consolidated statutes. · Pennsylvania Inheritance and Estate Tax Act (evanslegal.com/dan/paieta.html) Unofficial text, with some delays in updating. · Administrative Office of the Pennsylvania Courts (www.courts.pa.us or www.oapc.org) Rules, dockets, and decisions of Supreme, Superior and Commonwealth Courts, as well as rules of local courts. · Pennsylvania Orphans' Court Rules (evanslegal.com/dan/ocrules) Unofficial compilation of O.C. rules of some counties. · Philadelphia Estate Practitioner's Handbook (www.peph.com/) The revised and updated electronic "green book" of forms used by the Register of Wills and Orphans' Court of Philadelphia, as well as the "blue book" manual of practice and procedure before
the Orphans' Court, now online courtesy of the Probate Section of the Philadelphia Bar Association. · Pennsylvania Bar Institute (www.pbi.org) CLE courses and publications for Pennsylvania lawyers. Pennsylvania Counties The following are the Web sites for some Philadelphia-area counties, as well as other counties with features of interest. · Berks County Register of Wills (www.berksregofwills.com/) Includes searchable index of estate records and marriage records. · Bucks County Courts (www.buckscounty.org/courts) Information about courts and Register of Wills, but no forms or searchable index. · Chester County Register of Wills/Orphans' Court (www.chesco.org/wills/ index.html) Useful site with downloadable forms and audit schedules. · Delaware Co. Register/Orphans' Court (www.co.delaware.pa.us/ registerofwills/index.html) Local fees and schedules. · Montgomery County (www.montcopa.org) On-line access to records of Register of Wills, as well as land records. · Philadelphia Courts (courts.phila.gov/) Orphans' Court rules and forms, as well as searchable dockets for Common Pleas and Orphans' Courts. Bar Associations · ABA Real Property, Probate and Trust Law Section (www.abanet.org/rppt) On-line articles from Probate and Property and Real Property, Probate and Trust Journal, but many articles limited to members only. · Pennsylvania Bar Association ­ InCite (www.pabar.org) Free access to Pennsylvania statutes and court decisions for Pennsylvania Bar Association (Continued on Page 34) 33
Article: Reliable Internet Resources for Probate Lawyers (Continued from Page 33) members. Includes recent Real Probate, Probate, & Trust Law Section newsletters, accessible to members only. · American College of Trust and Estate Counsel (www.actec.org) Most materials accessible to members only. · Philadelphia Bar Association (www.philabar.org) · Allegheny County Bar Association (www.acba.org) · Delaware County Bar Association (www.delcobar.org) · Montgomery Bar Association (www.montgomerybar.org) Other General Resources · Findlaw (www.findlaw.com) Now owned by West Group, but still free and still good. · LexisOne (www.lexisone.com) Free access to some materials from Lexis. · Knowx (www.knowx.com) Access to public property and other records for a fee. · National Association of Unclaimed Property Administrators (www.unclaimed.org) Assists in searches for escheats among the various states. Search Engines · Alta Vista (www.altavista.digital.com) One of the older and bigger, and allows Boolean searches. · Google (www.google.com) One of the largest, but best known for its uncanny search engine and the high relevance of search results, and for the cache of out-of-date Web pages. · Northern Light (www.northernlight.com) One of the largest, and includes copyrighted articles for a fee. · Yahoo (www.yahoo.com) 34
Subscription Services All of the major legal publishers (Lexis, Westlaw, RIA, CCH, etc.) have online services available by subscription. A few other lesser-known services are worth mentioning: · Tax Analysts' TaxBase (www.tax.org) Online editions of "Tax Notes Today" and "State Tax News," as well as a searchable database of the most recent federal, state and other tax-related materials, usually delivered within 24 hours of release. One of the best sources for the latest releases from the IRS. · Leimberg Information Services (www.leimbergservices.com) Weekly electronic newsletters on topics of interest to estate planners, and a searchable database of past articles and original source materials. What is Missing? From the point of view of an estate practitioner in Pennsylvania, the following are the most important services currently missing from the Internet: · Ability to search IRS public and private rulings; · Pennsylvania Consolidated Statutes; · Fiduciary Reporter (even for a fee); · Downloadable forms from more counties; and · Ability to search federal decisions across circuits and districts; · Ability to search Tax Court deci- sions; · For those who are not members of the PBA: ability to search Pennsylvania decisions. Mailing Lists Automated mailing lists can be a good way of learning about new developments in the law and discussing technical issues with other lawyers. The following lists should be of interest to an estates lawyer in Pennsylvania. · ABA Probate and Trust Law List (www.abanet.org/rppt/ links-list-serves/list-serves.html) From the Real Property, Probate and Trust Law Section of the
ABA, and devoted to probate and trust law issues. Open, unmoderated, and very active. · Pennsylvania Bar Association Probate List (www.pabar.org/ listservform.shtml) From the PBA for Pennsylvania probate lawyers, but open to members only. Unmoderated, mostly announcements of new legislation, rules, or cases, with occasional discussions. · Philadelphia Bar Assoc. Probate List (www.philabar.org/ member/sections/discussionlists.asp) A list from the Philadelphia Bar Association for members of the Probate Section. Moderated, and mostly announcements of bar meetings, new legislation, rules or cases, with occasional discussions. E-mail List "Netiquette" If you join a mailing list, its usual- ly a good idea to "lurk" for a while to see what kinds of questions and announcements seem to be of the most interest, and to learn something of the "culture" of the list (if any). If you decide to send a message to the list, you might want to consider the following suggestions for making messages more useful and enjoyable: Before sending any response or other message to a list, stop and consider whether what you have to say is really useful or constructive to a majority of the subscribers. For example, are you saying anything other than "me too?" Before sending any reply to a message from the list, please consider whether the message should go to the entire list, or only to the original author. Some lists are configured so that clicking on "Reply" will send a message only to the person who wrote the message. In that case, if you want to reply to the entire list, you will need to "Reply to All" (if your email program has that feature) so that the e-mail address for the list is included in the "To:" field of your reply. Other lists are set up so that clicking on "Reply" will send a reply back to the entire list. (Continued on Page 36)
ARTICLE: Foreclosures: Bargain Purchase Stands
By Harris Ominsky A recent Pennsylvania Superior court decision upheld a sheriff's sale even when the buyer obtains a bargain price as low as 57 percent of the estimated fair market value of the property. Blue Ball National Bank v. Balmer, PICS Case No. 02-1647 (Pa. Super. Oct 25, 2002). "Grossly Inadequate" In that case President Judge Joseph Del Sole held that in order to upset a sheriff's sale where no misconduct occurs in the bidding process, the price would have to be "grossly inadequate." In the Blue Ball case, after the borrower defaulted on several promissory notes and mortgages covering four tracts of land, the bank obtained a judgment in the amount of $1,037,000 and foreclosed. At the sheriff's sale the property was sold to a third party for almost $1.25 million but the borrower tried to set aside the sheriff's sale, asserting that the bid was grossly inadequate, as evidenced by the fact that she had received an offer of $1.5 million for just one of the four tracts. As frequently happens, the parties' appraisers disagreed about the value of the properties. The borrower's expert appraised the four tracts at $2.2 million but the trial court accepted the buyers' appraisal of $1,643,000 and calculated that the purchase price represented 76 percent of this accepted appraisal. According to the trial court and the Superior Court, this percentage could not be considered grossly inadequate or "shocking to the conscience" of the court. The trial court further concluded that even if it accepted the $2.2 million appraisal, Harris Ominsky is a partner in the law firm of Blank Rome LLP. He is the author of Real Estate Practice: Breaking New Ground published by the Pennsylvania Bar Institute.
the sheriff's sale price would represent 57 percent of the fair market value and even that would not be "grossly inadequate." It is not clear what the court would have decided about 50 percent, or even 20 percent. Last Minute Offers The borrower had also argued that the bank had unfairly refused to postpone the sheriff's sale even though she had delivered to the bank an agreement of sale for $1.5 million on just one of the tracts. That agreement was given to the bank one day before the sale and it was an agreement to the purchaser's sister. Obviously, those two factors did not give the bank warm feelings about the bona fides of the buyer's conduct. In addition, on the date of the sale an investor offered the bank a nonrefundable payment of $100,000 in return for the postponement of the sale. The investor sought 30 days to put together a financing package to purchase the bank's lien positions and another 30 days after that to close on the properties. The bank turned down that offer but counter-offered with a request for a non-refundable payment of $200,000 and settlement within 30 days. The investor did not accept the counter-offer and the sale proceeded, as scheduled. To those of us who have been involved in sheriff's sales, it appears that the bank must have had a busy few days dealing with these lastminute offers. In any event, the court found that the bank had no obligation to delay the sheriff's sale under those circumstances. The Superior Court supported the conclusion of the trial court that the bank was reasonable in refusing to postpone the sale for these reasons. On the issue of the inadequate price the court stated: These sales are advertised and open to the public with the sale going to the highest
bidder. The high bidder, however, takes its purchase along with inherent risks, for the future value of property is not certain. In this case, although the Barleys may turn a profit from the purchase, their action is not without risk, and the price they obtain upon resale does not alone control. However even taking into account the resale price, the price bid by the Barleys at the sheriff's sale was approximately 72-75 percent of the values submitted. The court's decision on these facts was not an abuse of discretion. Policy Issues Foreclosing lenders and buyers at sheriffs' sales in Pennsylvania will be comforted by this Superior Court decision, which makes a strong statement supporting the integrity of the successful bid at a properly run sheriff's sale. Buyers at such sales frequently must commit themselves to loans, or other financial arrangements in order to bid at the sale and put up the necessary deposit to bind the sale. In addition, they often incur appraisal, inspection and legal fees in connection with the purchase. If sales could be set aside for mere inadequacy of price, prospective buyers at these sales, many of which are looking for bargain prices, would be turned off and in general, the competition to purchase foreclosed properties would be eroded. That could have a chilling effect on the bidding. From the borrowers' perspective, this kind of decision does not generally strip them of their rights. First of all, borrowers generally know months before the foreclosure sale about their default and the pending sale. Usually, there is little reason to wait until the last minute to try to (Continued on Page 36) 35
Article: Reliable Internet Resources for Probate Lawyers (Continued from Page 34) When sending a new message, make sure that you have a descriptive subject line, and summarize your question (or comment) at the beginning of the message so that readers can decide quickly if your question or comment is of any interest to them. When responding to a message, quote only as much of the original message as is necessary to understand the context of your response, make sure that the quotation is distinguishable from your response, and put your response at the end of the quote from the original message (not the beginning). Use lots of "white space." Break up your message into short paragraphs and put blank lines between your paragraphs. It will make your message easier to read. Before sending a question to the list, make sure you have done the basic research. For example, you shouldn't bother all of the subscribers to the list with a question that can be answered by consulting the local Orphans' Court rules. Do not send "subscribe," "unsubscribe" or other administrative commands to the list. To change your subscription, please go to the Web page you used to subscribe to the list and unsubscribe there (or, if you are familiar with mailing list commands, send your unsubscribe command to the mailing list software, which has a
e-mail address that is different from the list itself). Don't send e-mail messages that have been MIME or HTML encoded, because many e-mail readers can't display them as intended, and so many readers will see pages of confusing symbols instead of simple text. Stick with plain ASCII text messages. Don't use the mailing list to promote a product or service (although occasional announcements of products or services that are squarely on-topic for the list are usually considered to be acceptable). Do not go on vacation and set your software to respond to every message with an "out of office" canned reply. Be tolerant. Don't attribute to malice anything that can be explained by stupidity; don't attribute to stupidity anything that can be explained by ignorance; and don't attribute to ignorance anything that can be explained as an attempt at humor. For the Future The Internet continues to change daily, if not hourly, so much of the information above will be obsolete (or at least incomplete) by the time it is published. I plan to keep current links at my Web site to Internet resources on estate and trust law, so those wishing to get the latest information can check my home page at: http://evans-legal.com/dan. Finally, if anyone knows of any other estate or trust resources that are available through the Internet, please send information about them to me at [email protected]
Article: Foreclosures: Bargain Purchase Stands (Continued from Page 35) stop the sale, particularly if, as alleged in this case, the property is worth substantially more than the amount owed to the lender. In addition, what is frequently overlooked in these cases is that the borrowers themselves, or through a friend or agent, can participate in bidding up the property to its true value at the sheriffs' sale. In this case, if the property were truly worth $2.2 million, why couldn't the borrower have bid up to that at the sale, or at least up to the $1.5 million that had been offered by her sister? Even if the borrower did not have adequate financial backing to close with the sheriff on the sale, what would happen then? In some jurisdictions the custom is that the sale would go to the next highest bidder. In that context it would be difficult for a bidder to "steal" the property, and by that tactic a defaulted borrower can single-handedly drive up the price of the property to a more realistic figure. However, anyone planning to engage in such a strategy would have to analyze carefully the moral and legal implications of that type of brinkmanship. Published with permission of the author and the Philadelphia Intelligencer.
Article: Reliable Internet Resources for Real Estate Lawyers (Continued from Page 32) At www.legalconsumerguide.com there are Fair Housing Laws and other real estate related resources. The Mortgage Industry Standards Maintenance Organization's mission is to develop, promote and maintain voluntary electronic commerce standards for the mortgage industry. 36
Established in 1999 by the Mortgage Bankers Association of America, MISMO's site at www.mismo.org contains information and guidelines on paperless mortgages with electronic signatures. Start your search engines and enjoy resourceful surfing!
ARTICLE: Home Purchases: Trading Up
By Harris Ominsky One of the trickiest real estate transactions average homeowners will encounter is managing the timing of the sale of their home while they are purchasing another. When car owners "trade up," the transaction is often carried off routinely and without a hitch, but market and legal issues present a different picture with a trade up of a home. Buy First? When you sell your home to buy a new one, you may need the cash from the sale so you can afford the purchase. That's one of the basic problems. If you sell your home first to generate the needed cash, it's possible that you may not be able to complete the purchase on your new home. If you don't handle the timing right, you may find yourself out on the street. Sometimes, sellers may be able to persuade the buyer to close and lease the home back to them until they gain possession of their new home, but most buyers will resist that solution. Generally, it is conceded that when you are facing these issues, the best way to time the transactions is to find the home you want to buy and tie that purchase up with an agreement of sale -- before you have entered into an agreement to sell your present home. That usually works best because it's more difficult to find a home you want and complete an agreement for the price you want to pay, than to sell your existing home. Usually you can control the price at which you sell something better than the price at which you can buy something. Moving Out Assuming that you then have worked out both an agreement of sale of your home and an agreement to
purchase your new one, how can you manage the move? Ideally, you would like to move out all of your furniture, books and collectibles directly into the new house before the day of closing. However, how do you do that if you haven't yet closed and taken possession of the house? As mentioned earlier, in many cases, homeowners will need to close on their sale and take their cash before they can close on their purchase. Generally, the closing on both the sale and the purchase are scheduled on the same day with the sale scheduled earlier. The money from the sale is then transferred to the seller of the new home, usually through a title company that handles both transactions. That way, you wind up with the "trade up" taking place almost simultaneously. When the plan works right, you will have emptied out your old house by having the moving people (or your strong and willing friends and family) remove everything the day before the scheduled closing. Then, the truck can be on its way to transfer everything to your new home after you have closed on that purchase and received your new keys. In that way, your house will be cleared of everything, and left in broom-clean condition at the time your buyers have made their final inspection. All this works very well unless there is some hitch, which can occur from time to time. If, for some reason, your buyer does not complete the scheduled closing, you won't have the funds you need to settle on the new house. That leaves you with an empty house -- and your furniture in a truck. It could also leave you in default on your agreement to purchase the new home. There are many reasons this could happen. For example, the buyers of your house may have depended on selling their home and that sale may have fallen through. Also, their prom-
ised mortgage may have been lost, or they may have just changed their minds. When that happens, the parties involved may find themselves in a tangle of lawsuits. The Agreement How should all of this be handled in an agreement of sale? Buyers would like to have an agreement that permits them to close on the sale of their home before they are obligated to close on the purchase of the new house. On the other hand, sellers would like to know that they have a firm deal on the sale of their house long before the buyers settle on the sale of their home. Sellers who agree to make their agreement of sale contingent on the buyers' sale should realize that they are essentially giving the buyers an option. With that kind of agreement, buyers could easily change their mind about buying and obtain a refund of the deposit. All they have to do is to hold out for a price or terms on the sale of their house that make it impossible to meet the contingency, or they can simply drag their feet in selling their house. Normally, buyers will be motivated to sell their home, but occasionally, buyers will use that kind of contingency to terminate the purchase agreement on the new home if they have changed their minds about moving. Occasionally, a buyer may be planning to "flip" the agreement of sale on the purchase of the new home for a profit. Under those circumstances, devious buyers could tie up the sellers' home under an agreement of sale in an attempt to find a buyer who will pay more for that property than the agreed purchase price, and then if they don't succeed in finding this buyer, they can merely exercise their right to terminate the agreement and receive their deposit back on the (Continued on Page 38) 37
Article: Home Purchases: Trading Up (Continued from Page 37) grounds that they have not met the sale-and-settlement contingency. PAR Addendum The Pennsylvania Association of Realtors (PAR) has prepared and distributed two different addenda to deal with what they call the "Sale and Settlement of Other Property Contingency." They each condition the buyers' obligations on the buyers' sale of their house. One, which is favorable to sellers, gives the sellers the right to continue marketing their house even after the agreement of sale is signed. In that addendum, the sellers' continuing right to sell the property to somebody else is cut off only after the sellers have approved the terms of an agreement of sale for the buyer's property. This form will not usually work for a buyer, because it does not tie up the seller with an enforceable obligation to sell. It implicitly permits the seller to use the buyer's agreement as a "stalking-horse" in an attempt to try to get a higher price for the house from other prospects. It does not even give the buyer a right to meet an offer from another prospect. The other PAR addendum also makes the agreement contingent upon "the sale and settlement" of the buyer's property. It is more favorable to buyers, but it requires buyers to act quickly to list their property for sale with a member of a multiple listing service and to act reasonably in trying to sell the property at no more than a designated price. The key provision of this addendum states: 3. If Buyer's Property is not under an Agreement of Sale, approved in writing by Seller, on or before __/__/__, Buyer agrees to extend the date for Buyer's Property to be under an Agreement of Sale until Seller terminates this Agreement in writing. In the event Seller terminates this Agree- 38
ment in writing, all deposit moneys paid on account of purchase price will be returned to Buyer." Several things are noteworthy about that addendum. First, since the agreement is conditioned upon the sale and settlement of the buyer's property, the sellers may have to refund the buyer's deposit if for some reason the buyers' sale of their property doesn't go through. Theoretically, that could mean that if the buyers have not closed on the sale of their property as late as the day that the new home is scheduled to close, the buyers could terminate the agreement of sale on their new home and get back their deposit. Also that addendum provides that the seller can terminate the agreement any time after the designated deadline which is set forth in the abovequoted Paragraph 3, unless the seller has approved the buyer's agreement of sale by that date. Obviously, once the seller approves the buyer's agreement of sale, the seller takes the risk that settlement may not occur under that agreement. That raises the question of what kind of an agreement the seller is obligated to approve under the addendum. For example, if the deadline to obtain an agreement of sale is within 30 days from the signing of the agreement with the sellers, what happens if the buyers bring the sellers an agreement within that time but that agreement has contingencies? Suppose the buyer's agreement of sale provides that it is contingent upon the purchasers of that property being able to obtain mortgage funds in a certain minimum amount? That contingency may not be met for months after that date, and therefore, sellers who approve that kind of an agreement will not know whether they have a firm deal for many months. The addendum does not attempt to resolve any of these issues. In addition, the form does not specify whether buyers can waive the home-sale contingency if they obtain financing or they become confident enough to complete the transaction before they sell their home.
Strategies Lawyers who represent parties trying to do a deal with a sale-ofproperty contingency should make sure that they advise their clients of the issues that lurk with these kinds of agreements so their clients are not blindsided when things don't work out as planned. These types of deals will continue to be made in buying and selling homes, so it is important that the language in the contingency be carefully negotiated. Sellers who are presented with this type of a contingency may very well decide that they would rather accept a lower price for the property from another buyer than to take their chances on the achievement of a contingency under an agreement that will bring them a higher price -- but may never close. On the other hand, buyers should be made aware that if they insist on this kind of contingency when they have found their dream home, they may lose out to another buyer who may be able to steal their dream from them at a lower price because that buyer is willing to commit to the purchase without conditions. A lawyer should be able to help buyers purchase the property they want without the necessity of a sale contingency. For example, one strategy is to help buyers obtain a swingloan mortgage commitment in a large enough amount to permit them to purchase the dream home even if they have been unable to sell their home before they must settle on the purchase. That may be feasible because they can secure the loan with a mortgage that covers both the new home and the old one. Then, when they eventually sell their home, they can take the cash from that sale and pay down the swing loan. Other techniques can be used to minimize the risk that buyers will be stuck with two homes, and for some clients those methods may prove to be more practical than trying to persuade a seller to accept a sale which depends on the buyers' sale of their home. Published with permission of the author and the Philadelphia Intelligencer.
UPDATE: RPPT Section Listservs
By Neil Hendershot Listservs Our section encourages greater use of our Real Property, Probate & Trust Law Section's two listservs by our members -- one for our Probate and Trust Division ("probatetrust" listserv), and the other for our Real Property Division ("realproperty" listserv). These resources may become our greatest section benefit to members. The reference and discussion topics on our two listservs during the past year have been varied, current and important. Please scan the "Selected Topics" listed at the end of this article. Our member subscribers have recognized value in participating, as evidenced by their supportive "Subscriber Comments" set forth at the end of this article. A listserv is an Electronic Mailing list that includes only persons entitled to membership who affirmatively choose to participate by subscribing online. This form of an electronic message mailing list allows a participant to read and respond to messages posted by other members. A participant can, from the messages that members post periodically, learn about developments in the subject matter of interest to the listserv's members, ask questions for reply by other members willing to help, and become informed by leadership as to the group's activities. Participants can respond to any message -- either directly to the sender, or to the entire group. The following revised and updated instructions should assist in your effective use of our section's two listservs. You may want to save these directions for future reference. Participating on a Listserv Our section's listservs are "exclusive" or "closed," that is, available only to our section's members. Our
section does not maintain any "open" listservs that would be available to anyone. To participate, a section member must subscribe through the PBA's procedures. As a section member in good standing during the current membership year, you could subscribe for either, or for both, of our section's listservs. Each section listserv member is a full participant, able to receive via email all messages posted, and able to post messages to the entire listserv membership via an e-mail message. In participating, we suggest that you follow proper "Netiquette," that is, "Internet Etiquette," as suggested by the American Bar Association for its listservs, and as found online at www.abanet.org/discussions/ netiquette. html Always recognize and respect the purposes and limitations of postings by another listserv member. We expect no plagiarism, no alteration, no commercial use, no third-party reliance and no liability to result from any message posting. The value and integrity of our listservs depends upon responsible behavior by all subscribers. Our section reserves the right to limit or terminate the privileges of any subscriber who would abuse our common trust and expectations. Subscribing and Unsubscribing to a Listserv To subscribe to a RPPT Section listserv, click on the link found at the bottom left of the homepage of the PBA Web site, at www.pabar.org. That link (which is identified below in the underlined text) is found within the following message on the PBA homepage: Sign Up Now for a PBA Listserv -- Want to know about the hot issues in law offices around the state? To network with lawyers in your practice area(s), sign up and join a PBA listserv. Member-
ship in PBA listservs is exclusive to PBA members who belong to the sponsoring committees and sections. Clicking on that link will take you to the online subscription form, found at www.pabar.org/listservform. shtml. Then, online, type into the form your name, e-mail address (where the listserv messages will be sent to you), and Identification Number (either your Pa. Supreme Court ID Number, or your PBA Membership Number). Further down on that same Web page, you will sign up for listservs currently administered by the PBA, including our section's two listservs. Select by checking the block, but only for those PBA sections or committees of which you are a member, and for which you desire to participate in its listserv: · Check "Real Property Division" -- You subscribe to the "realproperty" listserv only. · Check "Probate Trust Division" -- You subscribe to the "probatetrust" listserv only. · Check "Real Property Probate Trust Law Section" -- You subscribe to both listservs. There is no charge to join. Participation is a benefit of section membership. Once subscribed to a section listserv, you will get the following confirmation message by e-mail: "File sent due to actions of administrator [email protected]" Some of our members have subscribed to the same listserv more than once, listing an alternate address, so that they can receive messages while in the office, and also while home. Unsubscribing, or Changing an E-mail Address To unsubscribe from a list, send a message to the appropriate listserv -- either to "[email protected] (Continued on Page 40) 39
Update: RPPT Section Listservs (Continued from Page 39) pabar.org" or "probatetrustrequest @list.pabar.org" -- with the word "unsubscribe" in the subject of your e-mail message. The body of the message can be left blank. You must send that message from the e-mail address where you were registered originally as a subscriber. To change your e-mail address, first you must unsubscribe from the old e-mail address by sending an "unsubscribe" message from that old e-mail address; and then you can subscribe anew by sending a "subscribe" message registering your new e-mail address. Sending an e-mail to the list, to the listserv administrator, or to any individual on it, will not change your e-mail address on the listserv, which is maintained by the PBA on a special server. Receiving Messages After subscribing, you should begin to receive e-mail messages at the address you registered, as periodically posted to the listserv(s) by other subscribers. You will receive only current e-mail messages sent, not a compendium of archived or past messages. Messages are posted periodically and not on any schedule, so you may not receive any messages from a listserv for some time after you subscribe. Although our posted messages are not overwhelming in number, most are timely and very relevant to our practice areas. Messages that you receive via our listserv(s) will be identified by that listserv with brackets in the message's subject -- for example "[probatetrust] Meeting Notice" To reply to any message received, confirm that the listserv name is included either in the "to" or "cc" fields. If you see the listserv name with "bounce" included in the name, remove that address. A "bounce" address is a black hole. In that case, you should manually add the listserv address to one of the address fields in order for your reply to make it to the members of that list. 40
Forwarding and Archiving Messages You can forward any message to an e-mail addressee not on the listserv. For example, you may wish to forward messages to others in your office, or to a governmental official or a court officer. Please give credit, in a responsible way, to our section's listserv and to the person who originated the message; and please do not appropriate it for your own without credit. In this manner, other forwarded recipients will be encouraged to join the listserv(s) directly (if they can); and those who post messages on the listserv will not feel used. Forwarded recipients, as non-subscribers, would not be able to post a reply to the listserv. However, they could respond directly to the listserv subscriber who posted the message originally -- if that information is included -- manually and outside of the listserv operations. Currently, our section does not maintain a common online archive on the PBA Web site as to past posted messages. Thus, we recommend that, in your e-mail program, you set up an archive folder to store messages that you find particularly useful, such as those with reference links or good advice. You could search your personal message archive in the future when you want to find a particular message. Our listserv subscribers have found our listserv communications very valuable; and we expect that this will continue to be the case. See some of the very supportive "Comments by Subscribers" compiled at the end of this article. Replying to Messages To reply only to the member who posted a message on the listserv, click "Reply" to the message, and type your personal reply. This response will transmit only to the sender, not to the entire listserv membership. You can use the message header to send copies manually to other recipients. To reply to the entire listserv membership, click "Reply to All" to the message, and type your response in the message body. This response will go to the sender and also to the entire listserv membership.
Posting Messages, Attachments To post a message, type the text, while following proper "Netiquette." Always include in its header a brief reference or topic in the "Subject" of the message. Then address the message to the appropriate listserv, either [email protected], or [email protected] The ABA's "Netiquette" discourages attachments to messages of computer data files. In certain limited circumstances, we have found that inclusion of such a file, as first explained in the message, could be efficient and useful. Thus, we permit, but do not encourage, the use of attachments. Be aware, however, that attachments may be incompatible with your audience's software, and therefore may not be readable by them. Any attachments will always be received by the listserv subscribers at the end of the message which they receive, regardless where you place the file in your message as sent. Any such attached files must be in common formats available to the majority of users, such as plain text (.txt), Microsoft Word (.doc), Corel WordPerfect (.wpd), Adobe Acrobat (.pdf), photos (.jpg or .jpeg), or other common formats. Users who have the programs associated with those file formats should be capable of opening such files. Still, be reminded that some listserv members may not have the necessary programs for reading or viewing particular file formats. Also, attachments make a message large in storage size. Furthermore, some email security programs automatically block attachments as potential carriers of a computer virus. If you receive an attachment and decide to open it, make sure your virus software definitions are current. Assistance Our section's listservs are maintained by Traci Raho, Internet coordinator at the Pennsylvania Bar Association (800-932-0311, ext. 2255). If you have any questions regarding a listserv, you may contact Traci via phone or by an e-mail addressed to [email protected] (Continued on Page 41)
Update: RPPT Section Listservs (Continued from Page 40) In the alternative, you could send an inquiry to our section liaison, Michael Shatto, via his e-mail at michael. [email protected] You could also send an inquiry to your section's officers. RECENT LISTSERV POSTINGS A. Recent Selected Topics on the "Probatetrust" Listserv: · Principal and Income Act Adopted · Guardian's personal purchase of Incapacitated Person's Residence · Latest on de-coupling ... Change in federal tax rules could cost state $690 million over three years · Articles on Attorney General's Web site re: living trust abuse and prosecution · Act No. 50 of 2002 -- States two retroactive provisions affecting Powers of Attorney that clarified Act 39 of 1999 regarding its applicability to commercial transactions and to strictly Health Care POAs · Hurly Rule Repeal in Budget, and DPW's Income-First "savings" · Report of the Advisory Committee on Decedents' Estates Laws on the Uniform Principal and Income Act, together with an "insert" explaining legislative changes, with online reference · Selling "Living Trusts" in Eastern Pa. · Update on Pa.'s Proposed Change to "Income First" · Revisions to Pa Inheritance and Estate Tax, effective 7-1-2002, by Paul Dilbert, of PA Inheritance Tax Division · PA "Decouples" Estate Tax per HB 1848 · SB 1366 re unclaimed property escheats - signed by the governor on 6/29/02 as act No. 91 of 2002 · "Manual Concerning the Unauthorized Practice of Law" and "Pennsylvania Ethics Handbook" · SB 462 re: Viatical Settlements passed by the legislature and on the governor's desk to be signed · IRS Customer Service Number for
FET Inquiries to Cincinnati Office · 2003 Interest and Mileage Rates · Update on SB 1265 Health Care POAs · Bob Wolf, Ted Waters and Dan Evans on Sec. 8105 Unitrust Conversion · House Bill re: Community Spouse Resource Allowance, with online link · Effective dates of Recent Pa. Inheritance Tax Changes · PBA Senior Lawyers Committee publication of "A Guide to Legal Issues for Pennsylvania Senior Citizens," with online link · Discovery under an Estate Administration for Claim Consideration · UTMA and minor beneficiaries of retirement plan accounts · Proposed Split-Dollar Regulations · Contractual Payments due after death · Sarbanes-Oxley Act of 2002 · Executor liability for tax liens · HB 2060 re: Prudent Investor Act Amendment to the Prudent Investor Rule ("Hershey Trust" amendments) regarding charitable trusts · EIN block of numbers · Appeals from Orphans' Court Decision ­ A final appealable order? · Account and Audit Notice Knowledge · Allegheny County Bar Association's Brochure on Wills and Living Trusts · Commercial annuity as available resource and/or subject to estate recovery in Medicaid situation · Estate of Ray Bloom Ross, 2652 C.D. 2001 ­ tax rate on the taxes paid from the residue of the estate is based on the rate for the beneficiaries creating the tax, and not the beneficiaries of the residue itself · Bush's Economic Growth Plan · Pennsylvania Department of Revenue's Enforcement re: K-1s ­ New Revenue Unit to Track down `Pass Through' Non-filers · Philadelphia Law Project Resources (online booklets) on Guardianship, Long-Term Care Support, and Estate Planning for Persons with Disabilities
· Inquiry re: Investment Powers of Trustees · FTC Disclosure for Lawyers · Ethics advisory from the ABA's E- Report on 11/15/02 entitled "Ties Between Testator, Heir Can Bind -- Avoid Conflict in Work With Client Who Is Also Beneficiary of Will" · New IRS Procedures · Out-of-Hospital DNRs · Briskman Estate -- Standing in Orphans' Court B. Recent Selected Topics on the "Realproperty" Listserv: · Extinguishing private rights in unopened streets · Dad's will versus a formal subdivision plan under applicable subdivision ordinance · "Bonus Depreciation" Tax Law changes and effects · Seminar on Real Estate Issues Impacting Public Utilities and Telecommunications Companies · Allowances in Partition Action -- Costs of the Partition? Legal fees? Taxes and maintenance? · After-acquired property affecting reservation of mineral rights · Changes to Pennsylvania's Tax Laws affecting depreciation · Special Legislative Session for Property tax reform · Most recent published version of the MPC available on the Web for free · Governor Signs Act No. 113 (HB 1952) Urban Blight · Just for fun - Obscure survey reference of the week · Eminent Domain Code Bill · Real Estate Settlement Fees · Judgment filed against a decedent - Notice of Audit to Claimants · Representing buyer and seller of home · Adoption of SR 244, which creates a Real Property Law Advisory Committee (RPLAC) to serve under a new Real Property Law Task Force of the Joint State Government Commission · SB 14 re: Mortgage Satisfactions and HB 2302 re: Water Resource Planning to be signed by the Governor · "Hornbook on Developing and (Continued on Page 42) 41
Update: RPPT Section Listservs (Continued from Page 41) Maintaining Positive Client Relationships" · Property Tax/Rent Rebate Extension Ends Dec. 31 (12/17/2002) -- 2002 Rebate Booklets will be sent later than previous years · Federal tax lien against one spouse attaches to entireties property - U.S. v. Craft · Operational steps to take to guard against the threat of terrorists as tenants · SR 244 for new Joint State Government Commission Task Force on Real Property Laws · Community Options v. Bd. of Property Assessment -- nonprofit organization that receives a significant amount of its income from government is not entitled to a tax exemption · First Citizens National Bank v. Sherwood (PA Super. Ct.) -- Proper notice of a mortgage requires a diligent search on the part of the purchaser, and the question of diligence is a factual one to be determined by the accessibility of the records at the time of the search · Philadelphia Law Project Resources (online booklets) on Tenant's Rights C. Routine Information Posted to Both RPPT Listservs: · Invitation to post messages, with revised instructions. · Notices re: publication of section newsletters. · Request for committee participation · PBA publications available, with links on PBA Web site · Section Sessions scheduled at PBA Committee/Section Day · Monthly Legislative Updates and Reports, with links to pending bills · Availability online to section members of past RPPT newsletters · Registration information and session schedule for RPPT Spring Retreat · Updates on speakers for RPPT Retreats 42
D. Selected Subscriber Comments about RPPT Listservs: · "E-mail and listservs seem to be a very good way to disseminate important information quickly." Ted Watters, Pepper Hamilton LLP, Philadelphia · "Judge Drayer ... has asked that [the Montgomery County Court's Memorandum as to information required in a petition for court approval to a proposed change of the definition of "income" under a trust to the unitrust concept allowed under PA PEF Code Sec. 8105] be circulated to the probate bar through the listserv and otherwise made available." For Judge Peter Drayer, Court of Common Pleas of Montgomery Co., O. C. Division, Norristown · "I received an excellent response to my inquiry from Jeff Marshall. Also, Ed Carey called me. Louise Rynd asked to share the response with the trust banking community." Steve DiNovis, Exec. V. P., Susquehanna Trust and Investment Co., Lititz · "Sure, I would appreciate it if you would spread the information ... Thanks for your continuing support on the income-first issue." Jeff Marshall, Marshall and Associates, Jersey Shore · "Thank you for your helpful posts to the PBA RPPT Probate and Trust Law listserv." Bob Cloffine, York · "I used to receive your e-mails via one of my partners in Lancaster. I have now relocated to Pittsburgh, and would like to get on your circulation list, if I could. Thanks." Elizabeth Hambrick-Stowe, Hergenroeder Rega & Sommer LLC, Pittsburgh · "I appreciate the information. Thanks for your time and effort." Dennis J. Ward, Ephrata
· "Did I miss any tax issues? Maybe, but heh! What do you want from an e-mail, eh?" Bob Wolf, Tener, Van Kirk, Wolf & Moore P.C., Pittsburgh · "As always, very helpful ... Thank you, this sort of information is not only useful but welcome." Skip Corson, Fort Washington · "Thanks. I have found the listserv postings helpful, but this is the first occasion I have had to try a specific inquiry." Marc H. Jaffe, Fromhold Jaffe Broseman and Adams, Rosemont · "I, for one, greatly appreciate the material you've extended to the section. Insights from those involved with drafting legislation, reports of legislative progress, individual case problems, the monthly AFR's ­ all of that is welcome, even if some is redundant. Hats off to you and others willing to share your info and insights with the section." Stephen Kraybill, Blakinger, Byler and Thomas P.C., Lancaster · "By all means, continue to post them [CCH Tax Advisories]. Thanks". Laurel Lesser Zimet, Downingtown · "If you are not already on the listserv, you should get on the listserv." Jerry B. Chariton, Chariton and Schwager, Wilkes-Barre · "Thanks so much for participating." Neil Hendershot, Goldberg, Katzman and Shipman P.C., Harrisburg
Real Property Law Division Committees Common Interest Ownership David Haas Duane, Morris & Heckscher LLP One Liberty Place 1650 Market Street Philadelphia, PA 19103-7396 215-979-1000, FAX 215-979-1020 [email protected] Eminent Domain Christopher J. Clements Office of Chief Counsel PENNDOT PO Box 8212 Harrisburg, PA 17105-8212 717-787-3128, FAX 717-772-2741 [email protected] Financing of Real Estate David E. Schwager Chariton and Schwager 138 South Main St., PO Box 910 Wilkes-Barre, PA 18703-0910 570-824-3511, FAX 570-824-3580 [email protected] Landlord and Tenant Lee A. Stivale Vincent B. Mancini & Associates 414 E. Baltimore Pike Media, PA 19063 610-566-8064, FAX 610-566-8264 Liaison to Ethics and Professional Responsibility Committee Mark Rhodes Penmark Enterprises Inc. 1260 Wilmington Pike West Chester, PA 19382 (610)886-3000, FAX (610)886-3012 Publications Jonathan A. Jordan Riley, Riper, Hollin & Colagreco 312 West State St., 2nd Fl. Kennett Square, PA 19348 610-440-8800, FAX 610-444-6599 [email protected] Statutory Consolidation Michael A. Donadee Buchanan Ingersoll PC One Oxford Center, 20th Floor 301 Grant Street Pittsburgh. PA 15219-1410 412-562-8981, FAX 412-562-1041 [email protected] Title Insurance Alan D. Keiser Land America Financial Group 1700 Market St., Ste. 2110 Philadelphia, PA 19103 215-568-9690, FAX 215-665-3430 [email protected]
Vendors and Purchasers William C. Mackrides Mackrides Associates 755 North Monroe St. Media, PA 19063 610-565-6688, FAX 610-891-1645 [email protected] Web Site Liaison Arnold Kogan Goldberg, Katzman & Shipman PC 320 Market Street, P.O. Box 1268 Harrisburg, PA 17108-1268 717-234-4161, FAX 717-234-6808 [email protected] Zoning and Land Use Vincent B. Mancini Vincent B. Mancini and Associates 414 East Baltimore Pike Media, PA 19063 610-566-8064, FAX 610-566-8265 [email protected] Probate and Trust Law Division Committees Business Succession Planning Steven G. Winters Wolf, Block, Schorr & Solis-Cohen LLP 1650 Arch Street, 22nd Fl. Philadelphia, PA 19103-2097 215-977-2318, FAX 215-977-2346 [email protected] Estate Planning Thomas O. Hiscott Heckscher, Teillon, Terrill & Sager 100 Four Falls Corp. Ctr., Ste. 300 West Conshohocken, PA 19428-2983 610-949-4179, FAX 610-949-6042 [email protected] Ethics Stephen P. Paschall Lovett Bookman Harmon Marks LLP Fifth Avenue Place, Ste. 2900 120 Fifth Avenue Pittsburgh, PA 15222 412-392-2502, FAX 412-392-2221 Federal/State Law Interaction Arthur R. G. Solmssen, Jr. Dechert L.L.P. 4000 Bell Atlantic Tower 1717 Arch St. Philadelphia, PA 19103-2793 215-994-2303, FAX 215-994-2222 [email protected]
Fiduciary Services for the Aged and Infirm Carol Sikov Gross Sikov and Love 1400 Lawyers Bldg., 428 Forbes Ave. Pittsburgh, PA 15219 412-261-4202, FAX 412-261-1455 [email protected] Fiduciary Compensation Daphne Goldman Blank Rome Comisky & McCauley One Logan Square Philadelphia, PA 19103-6998 215-569-5574, FAX 215-832-5574 [email protected] Legislative Jonathan M. Schmerling Cohen and Grigsby PC 11 Stanwix Street, 15th Floor Pittsburgh, PA 15222-1319 412-297-4908, FAX 412-209-1844 [email protected] Office Practices Committee Daniel B. Evans 7963 Eastern Ave. Glenside, PA 19038-8501 215-233-0906 [email protected] Orphans Court Practice Committee John F. Meck Kabala and Geeseman 2900 CNG Tower, 625 Liberty Ave. Pittsburgh, PA 15222-3115 412-391-1334, FAX 412-391-6984 [email protected] Program Robert R. Kreitz Roland and Schlegal P.C. 5627 North 4th St., PO Box 902 Reading, PA 19603-0902 610-372-5588, FAX 610-372-3165 [email protected] Publications Stanley J. Lehman Klett Lieber Rooney & Schorling One Oxford Centre 301 Grant Street, 40th Floor Pittsburgh, PA 15219-6498 412-392-2000, FAX 412-392-2128 [email protected] Taxation Bert M. Goodman 60 Soldier Square Chesterbrook, PA 19087-0299 610-971-0199, FAX 610-971-0299 [email protected] 43
RPPT Section Newsletter - Inside the Summer 2003 Issue SECTION REPORT: From the Chair..................................................................................1 DIVISION REPORT: Probate and Trust Law ..................................................................3 DIVISION REPORT: Real Property Law ..........................................................................3 RECENT DEVELOPMENTS: Probate and Trust Law ....................................................4 ARTICLES: Pew Estate Revisited: Probate of Revocable Trust Required to Commence One-Year Statute of Limitation ....................................................................................6 Understanding and Planning for Pa.'s Decoupled Estate Tax................................9 Do-Not-Resuscitate Documents Promulgated by Pa. Dept. of Health ..................16 Using AIA Contract Documents ..................................................................................20 Obtaining Pennsylvania Death Certificates ..............................................................27 Living Trust Scams and Frauds ..................................................................................27 PHOTO REVIEW: Spring Retreat - March 6, 2003 - Harrisburg ..................................28 ARTICLES: Family Business Succession: Counseling and Coaching ..........................................30 Reliable Internet Resources for Real Estate Lawyers................................................31 Reliable Internet Resources for Probate Lawyers ....................................................32 Foreclosures: Bargain Purchase Stands ......................................................................35 Home Purchases: Trading Up ......................................................................................37 UPDATE: RPPT Section Listservs ..................................................................................................39 MISCELLANEOUS: Mark These Dates ..........................................................................................................5 RPPT Section Committee Assignment Request Form ..............................................15 RPPT Section Leadership List ......................................................................................26 RPPT Section Committee List ......................................................................................43
Interested in contributing to the next RPPT Newsletter? We welcome updates on committee activities or projects, or on matters affecting our practice areas. We seek equality between our divisions; and we need commitments for material from each division. We ask our officers, council members and committee chairs to submit or recruit material, or to recommend material to reprint with permission. Please produce submissions in MS Word format and send the file as an attachment via e-mail to the editors. Editor: Mark B. Hammond [email protected] Associate Editors: Todd A. Fuller (P&T Division) [email protected] Jonathan Jordan (RP Division) [email protected] Executive Editor: Neil Hendershot [email protected] PBA Staff Editor: Patricia M. Graybill [email protected]
Real Property, Probate and Trust Law Newsletter 100 South St. · P.O. Box 186 Harrisburg, PA 17108
Non-Profit Org. U.S. Postage PAID Harrisburg, PA Permit No. 472
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