The opinion of the court was delivered by: Mary Hannah Leavitt, Judge
Argued: September 16, 2010
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE DAN PELLEGRINI, Judge HONORABLE RENEE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JOHNNY J. BUTLER, Judge
The Commonwealth of Pennsylvania has filed exceptions to an opinion and order of a three-judge panel of this Court dated April 8, 2010, which reversed the Board of Finance and Revenue's imposition of the state's one-percent realty transfer tax on the conveyance of real property to an irrevocable living trust. Miller v. Commonwealth, 992 A.2d 950 (Pa. Cmwlth. 2010). In doing so, the panel concluded that to be excluded from the realty transfer tax, a living trust need not be a revocable trust so long as it functions as a will substitute. After review, we confirm the result reached by the panel.
Charles and Dorothy Miller, husband and wife, created The Dorothy M. Miller Family Irrevocable Trust (Miller Trust) in October 2005. The Miller Trust Agreement names Dorothy Miller as settlor, and Charles and Dorothy Miller as co- trustees. The beneficiaries of the trust are Mr. and Mrs. Miller and their only child, Sharon M. Gregg. In pertinent part, Section 2.01 of the Trust Agreement states: 2.01. Initial Principal. Settlor, desiring to establish an irrevocable trust, does hereby irrevocably transfer, assign and deliver to the Trustees and their successors and assigns the assets listed on Schedule "A", attached hereto and made a part hereof.
Respondent's Brief, Appendix A, Exhibit A, at 2. Section 10.01 of the Trust Agreement states: 10.01. Irrevocability. Settlor has been advised of the consequences of an irrevocable trust and hereby declares that this Trust shall be irrevocable and shall not be altered, amended, revoked, or terminated by Settlor or any other person or persons.
By deed recorded November 30, 2005, Mr. and Mrs. Miller transferred title to their house and farm located in Carlisle to the Miller Trust.*fn1 The Millers did not pay the standard one-percent realty transfer tax on the transaction, claiming that it was not subject to the Tax Reform Code of 1971 (Realty Transfer Tax Act)*fn2 because it was a transfer to a "living trust."
On April 12, 2006, the Department of Revenue issued a Realty Transfer Tax Notice of Determination providing that the transfer of the Millers' realty, valued at $218,540, was subject to $4,370.80 in state and local realty transfer taxes, plus applicable interest and fees. The Department advised the Millers that their claimed taX exemption was disallowed because the Miller Trust did not "qualify as an ordinary or living trust." Respondent's Brief, Appendix A, Exhibit D, at 2.
The Millers filed a petition for redetermination with the Department's Board of Appeals. On February 16, 2007, the Board of Appeals issued its decision, holding that the transaction was subject to the realty transfer tax. The Board reasoned that because the Miller Trust is irrevocable, it is not a "will substitute" and, therefore, is not a living trust for which the legislature created an exclusion in the Realty Transfer Tax Act. On further appeal, the Board of Finance and Revenue affirmed the imposition of the realty transfer tax on the same grounds. The Millers petitioned for this Court's review.
On review, the three-judge panel reversed the Board of Finance and Revenue's decision, and held that the Millers' conveyance of their property to the Miller Trust was excluded from the one-percent realty transfer tax.*fn3 In so holding, the panel examined the following provision concerning transfers of real estate to a living trust in Section 1102-C.3(8.1) of the Realty Transfer Tax Act:
The tax imposed by section 1102-C shall not be imposed upon:
A transfer for no or nominal actual consideration to a trustee of a living trust from the settlor of the living trust. No such exemption shall be granted unless the recorder of deeds is presented with a copy of the living trust instrument.
Section 1102-C.3(8.1) of the Realty Transfer Tax Act, 72 P.S. §8102-C.3(8.1) (emphasis added). The panel also considered the definition of "living trust" in the Act:
Any trust, other than a business trust, intended as a will substitute by the settlor which becomes effective during the lifetime of the settlor, but from which trust distributions cannot be made to any beneficiaries ...