Charles O. MILLER, Jr., and Dorothy M. Miller, Appellees
COMMONWEALTH of Pennsylvania, Appellant.
Argued May 9, 2012.
Appeal from the order of Commonwealth Court at No.
757 FR 2007 dated 03-29-2011 sustaining in part and overruling in part the
exceptions filed to the 4-8-2010 order which reversed the Department of
Finance and Revenue decision at No. 0613343 dated 10-16-2007. Intermediate
Court Judges: Bonnie Brigance Ledbetter, President Judge, Bernard L.
McGinley, Dan Pellegrini, Renee Cohn Jubelirer, Mary Hannah Leavitt,
Patricia A. McCullough, Johnny J. Butler, Judges.
John G. Knorr III, JoAnn Petroziello Collins, Kathleen Granahan Kane, Office of Atty. Gen., Harrisburg, for Appellant.
Lowell Rector Gates, Sarah Elaine McCarroll, Gates, Halbruner & Hatch, P.C., Lemoyne, for Appellees.
Wendi Lynn Kotzen, Christopher Andrew Jones, Ballard Spahr LLP, Philadelphia, Rudolph Garcia, Buchanan Ingersolll & Rooney, PC, Philadelphia, George F. Nagle, Sorin Royer Cooper LLC, Conshohocken, for Philadelphia Bar Ass'n, Amicus Curiae.
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.
Appellees, husband and wife, created The Dorothy M. Miller Family Irrevocable Trust in October, 2005. The trust names Mrs. Miller as settlor, and her and her husband as co-trustees. The sole beneficiaries of the trust are appellees and their only child. Pursuant to § 2.01 of the trust, Mrs. Miller irrevocably " transfer[red], assign[ed] and deliver[ed] to the Trustees and their successors and assigns the assets listed on Schedule ‘ A’ [.]" Miller Trust, at 2. By deed recorded November 30, 2005, appellees transferred title to their house and farm to the trust. Appellees did not pay realty transfer tax on the transfer, claiming it was an excluded transaction under the Realty Transfer Tax Act, 72 P.S. § 8101-C et seq. , as a transfer to a " living trust." See id., § 8102-0.3(8.1). A living trust is " [a]ny 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 other than the settlor prior to the death of the settlor." Id., § 8101-C.
On April 12, 2006, the Department of Revenue issued a Realty Transfer Tax Notice of Determination providing the transfer was subject to $4,370.80 in realty transfer taxes, plus applicable interest and fees. The Department advised appellees their claimed exclusion was disallowed because the Miller Trust " [d]oes not qualify as an ordinary or living trust." Pennsylvania Realty Transfer Tax Notice of Determination, 4/12/06, at 2. Appellees filed a petition for redetermination with the Department's
Board of Appeals. The Board held the transaction was subject to the realty transfer tax, reasoning an irrevocable trust cannot be a living trust because " the settlor of a living trust must be free to change or revoke all or part of the trust during his lifetime." Department of Revenue Board of Appeals Decision and Order, 2/16/07, at 2. On further appeal, the Board of Finance and Revenue affirmed the imposition of the tax on the same grounds. See Board of Finance and Revenue Order No. 0613343, 10/16/07, at 4.
A three-judge panel of the Commonwealth Court reversed the Board's decision, and held appellees' conveyance of their property to the Miller Trust was excluded from realty transfer tax. The panel relied on Mrs. Miller's testimony she intended the Miller Trust to be a substitute for her will, which it found sufficient to meet the " ‘ intended as a will substitute by the settlor’ " language defining a living trust. Miller v. Commonwealth, 992 A.2d 950, 952-53 (Pa.Cmwlth.2010) (quoting 72 P.S. § 8101-C). The panel found the settlor's subjective intent alone could be determinative, but further reasoned the trust provided objective evidence to support her stated intention to create a will substitute. Id., at 953. Specifically, the panel found the trust shifted possession of the property to appellees' daughter outside of probate and permitted appellees to retain substantial lifetime rights of dominion and control over the property; this met the Restatement's definition of a " will substitute," which the panel adopted. Id. (quoting Restatement (Third) of Property: Wills and Other Donative Transfers § 7.1(a)).
The Commonwealth filed exceptions to the panel's opinion and order, arguing the panel erred in describing § 8102-C.3(8.1) of the Act as an exclusion from taxation, and in holding the Miller Trust was a will substitute. On review of these exceptions, an en banc court affirmed the panel's result on a different rationale. Although the court agreed with the panel's characterization of subsection 8.1 as an exclusion, it did not agree the settlor's subjective intent is determinative in assessing a trust's status as a will substitute. Miller v. Commonwealth, 18 A.3d 395, 399-402 (Pa.Cmwlth.2011) ( en banc ). Rather, the court held evidence of such intent only relevant " in the rare case where, because of an ambiguity, parol evidence may be used." Id., at 402. The court instead took an objective review of the trust's characteristics, which it found met the Restatement's definition of a " will substitute." See id., at 400-02. Judge Cohn Jubelirer filed a dissenting opinion. Relying on the Restatement's definition of a " will substitute," Judge Cohn Jubelirer would have held a will is, " by ...