Roland J. Christy, appellant, pro se.
Robin A. Gower, Deputy Atty. Gen., with counsel, Ernest D. Preate, Jr., Atty. Gen., for appellee.
Colins and Smith, JJ., and Barbieri, Senior Judge.
[ 129 Pa. Commw. Page 346]
Appellant, the Estate of Margaret Andrew Hansell, acting through its executor, Roland J. Christy, appeals the January 10, 1989 final decree of the Montgomery County Court of Common Pleas, Orphans' Court Division (Orphans' Court), which sustained the Pennsylvania Department of Revenue's (Department) levy of a 15% inheritance tax on the remainder interest in the principal of a testamentary trust created by Hansell. The primary issue presented for review is whether, pursuant to Sections 1701-1796 of the Inheritance and Estate Tax Act (Act), 72 Pa.C.S. §§ 1701-1796, a remainder interest in the principal of a testamentary trust is subject to a 15% state inheritance tax where a testatrix leaves a portion of her residuary estate in a spendthrift trust and provides her son, the life tenant thereof, with a testamentary power of appointment over the remainder interest which he exercises by will and supplemental agreement in favor of a tax-exempt charity more than three years after the testatrix's death. The final decree of the Orphans' Court is affirmed.
Hansell died on March 13, 1985 and her will was duly probated. Therein, she left one-half of her residuary estate to her son, LeRoy Kingsland Jones (Jones), with the remaining one-half placed in a spendthrift trust, the income distributions from which were also to go to Jones until his death and, if such distributions proved insufficient to meet his needs, the trustees named in Hansell's will, Christy and The Bryn Mawr Trust Company, were authorized to invade trust principal to the extent they deemed necessary. Hansell's will further provided Jones with a power to appoint by will the remainder interest to his estate or others; and directed that none of the benefits thereunder shall be subject to voluntary or involuntary alienation or attachment.
[ 129 Pa. Commw. Page 347]
On February 2, 1988, Appellant filed a "future interest compromise" as to the amount of state inheritance tax due on the remainder interest.*fn1 Therein, Appellant proposed to pay inheritance tax at a rate of 15% on one-third of the remainder interest and 6% on the other two-thirds, explaining that Jones had a power of appointment which could be exercised in favor of a tax-exempt charity and that the trustees were empowered to invade trust principal for the health, maintenance and support of Jones, but had not yet done so.
In response, the Department filed an assessment and appraisement on April 13, 1988, valuing the remainder interest at $149,791.68 and imposing state inheritance tax on the entire remainder interest at the rate of 15%*fn2 for
[ 129 Pa. Commw. Page 348]
failure to provide sufficient evidence that Jones' power of appointment would be exercised in favor of a tax-exempt charity and that trust principal was not likely to be invaded.
On May 13, 1988, Jones executed a will wherein he appointed the remainder interest to the Sierra Club Foundation (Sierra), a tax-exempt charity,*fn3 and, on May 16, 1988, executed an agreement with Sierra, purporting to make this appointment irrevocable.
Also, on May 16, 1988, Hansell's Estate appealed the Department's 15% inheritance tax levy on the remainder interest. After hearing, the Orphans' Court sustained the Department's decision on the ground that, even if irrevocable, Jones' exercise of his power of appointment more than nine months after Hansell's death could not operate to change the rate of inheritance tax due on the ...