18 A.3d 395
Pa. Commw. Ct.2011Background
- Miller and Dorothy M. Miller created The Dorothy M. Miller Family Irrevocable Trust in Oct 2005, naming Dorothy as settlor and the Millers as co-trustees; beneficiaries are the Millers and their daughter Sharon Gregg.
- Trust terms include irrevocability (Section 10.01) and lifetime dominion/control provisions for the settlors, with contingencies for distributions to family members after death.
- By deed dated Nov 30, 2005, the Millers transferred title to their Carlisle residence and farm to the Miller Trust, seeking to avoid the one-percent Realty Transfer Tax.
- On Apr 12, 2006, the Department of Revenue issued a Notice of Determination taxing the transfer and denying the exemption, asserting the Miller Trust did not qualify as an ordinary or living trust under the Act.
- The Board of Appeals (Feb 16, 2007) upheld taxation; the Board of Finance and Revenue affirmed; the Millers sought review in this court, which panel reversed and held the transfer excluded from tax under 1102-C.3(8.1).
- The court adopted Restatement (Third) of Property 7.1(a) to define a will substitute and found the Miller Trust satisfies the exclusion, while rejecting the Commonwealth’s broader revocability requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 1102-C.3(8.1) creates an exclusion from tax for living trusts intended as will substitutes | Miller: exclusion applies; subjective intent not controlling; instrument shows will substitute. | Commonwealth: either does not apply as exclusion or trust not a will substitute. | Exclusion applies; trust is a will substitute under the statute. |
| Whether Miller Trust qualifies as a will substitute under Restatement definition | Miller Trust satisfies will-substitute criteria. | Commonwealth contends irrevocability defeats will-substitute status. | Yes, Miller Trust functions as a will substitute. |
| Whether revocability is required for a trust to qualify | Revocability not required; statute does not specify revocable-only. | Trust must be revocable to be a will substitute. | Revocability not required; irrevocable trust can be a will substitute under the exclusion. |
| Whether subjective settlor intent is relevant to determining will substitute status | Intent evidence unnecessary if instrument unambiguous. | Intent may be relevant in ambiguity. | Subjective intent not relevant where instrument is unambiguous; objective terms govern. |
Key Cases Cited
- Crawford Central School District v. Commonwealth, 585 Pa. 131 (2005) (exemption vs exclusion distinctions in tax law)
- In re Milton Hershey School, 590 Pa. 35 (2006) (recognizes living trust concepts under tax statutes)
- In re McGinley's Estate, 257 Pa. 478 (1917) (contract to create irrevocable will; enforceability under probate law)
- In re Estate of Swenk, 176 Pa. Super. 513 (1954) (probate-related trust and disposition issues)
- Consolidated Rail Corp. v. Commonwealth, 679 A.2d 303 (Pa.Cmwlth.1996) (de novo review of tax determinations; standard of review)