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HomeMy WebLinkAbout98-287 OrphansESTATE OF DOLORES S. BERNARDI, deceased ANDREA RHYNE, Petitioner VS. GARY R. BERNARDI, Respondent IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 21-98-287 ORPHANS' COURT DIVISION IN RE: MOTION TO GRANT PRAYER TO AUTHORIZE THE PETITIONER TO INITIATE LEGAL PROCEEDINGS TO COLLECT ESTATE ASSETS AND MOTION TO GRANT PRAYER TO APPORTION THE UNITED STATES ESTATE TAX BEFORE HESS, J. OPINION AND ORDER Before the court is a petition to recover that portion of United States estate tax attributable to a Qualified Terminable Interest Trust, part of the estate of Dolores S. Bernardi. Ms. Bernardi died on March 26, 1998, and Letters Testamentary were issued to Gary R. Bernardi and Andrea Rhyne. Andrea Rhyne is the petitioner in this action and Gary Bernardi is one of the respondents. Dolores Bernardi's husband, Robert Bernardi, died in 1987. His Will had created a Qualified Terminable Interest Trust ("QTIP Trust") naming Dolores as the life income beneficiary of the trust and his children (Dolores's stepchildren), Gary and Cynthia, as remaindermen. Under the QTIP Trust, Dolores received income for life and Gary and Cynthia were to receive the remainder. Upon Dolores's death, the assets of the QTIP Trust were included 21-98-287 in her federal taxable estate and the estate paid the entire U.S. estate tax liability which was owing, including tax attributable to the assets of the QTIP Trust. This payment was made in accordance with the provision of Dolores Bernardi's last Will, written in 1994, which provided, inter alia, that "all taxes and assessments imposed by any governmental body as a result of my death, whether on property passing under this Will or otherwise, shall be paid from my residuary estate .... "In this action, the estate seeks reimbursement from the remainder beneficiaries of the QTIP Trust for the tax attributable to that trust. The additional U.S. estate tax imposed upon the estate of Dolores as a result of the assets and the Qualified Terminable Interest Trust established under the Will of Robert was $361,390.00. The petitioner sought a prehearing disposition of this matter claiming that she was entitled to relief as a matter of law. We denied these prehearing motions and, over the objection of the petitioner, permitted testimony to be taken. Two months after Dolores's Will was executed on September 21, 1994, the Pennsylvania legislature enacted an amendment to Section 3701 of the Probate, Estates and Fiduciaries Code which provided that a testatrix may waive the right of recovery from the remainder beneficiaries of the additional estate tax paid by her estate by reason of the inclusion in her taxable estate of the assets of a QTIP Trust in which she was the lifetime beneficiary only by expressly referring Section 10(3) of the Act of December 1, 1994, P.L. 655, No. to that right. 20 Pa.C.S.A. 3701. 102 provides: The amendment ... of 20 Pa.C.S.A .... 3701 ... shall apply to wills executed, trusts created and conveyances made before, on or after the effective date of this Act. 2 21-98-287 In December of 1996, Dolores met with her attorney and reviewed her Will. She decided not to make any changes to it. The same thing occurred in April of 1997. On both occasions, the possibility exists that Dolores was not aware of the statutory amendment to Section 3701. On August 5, 1997, the amendment to Section 2207(A) of the Internal Revenue Code became effective, which amendment makes it clear that a testatrix may waive the right of recovery on behalf of her estate only if her Will specifically indicates such a waiver. The Internal Revenue Code makes it clear that this section shall apply with respect to decedents dying after the date of enactment. Dolores's Will, of course, does not include such specific language effectuating a waiver of recovery by her estate. In October of 1997, two months after the enactment of revised Section 2207(A) and over two and one-half years after the effective date of the modifications of Section 3701 of the Pennsylvania statute, Dolores again met with her attorney. Finally, in December of 1997, Dolores's attorney became aware of the waiver issue and scheduled another meeting with her. At that meeting, options were presented to Dolores concerning the payment of the tax. She made no decision to change her Will at that time. In fact, she did not contact her attorney prior to her death to change her Will, even though the language in her Will was now legally insufficient to effectuate a waiver of recovery tax from the QTIP Trust and its remainder beneficiaries. At Dolores's death, her Will continued to direct the payment of all taxes from the residuary estate. The effect of the statute is to vitiate that directive. We continue to believe (though petitioner barely acknowledges it) that the serious issue in this case is whether the provision in the law making it applicable to Wills written prior to the effective date of the statute is constitutional. The Pennsylvania Constitution, in its very first article entitled "Inherent Rights 21-98-287 of Mankind," defines as "inherent and indefeasible" the right of"possessing and protecting property." See Pa. Const. Art. I, Sec. 1. As noted by the respondent, the retroactive application of the statute to defeat the established intention of a testator has been found unconstitutional. In Borsch Estate, 362 Pa. 581, 67 A.2d 119 (1949), the Pennsylvania Supreme Court considered an application of the Estates Act of April 24, 1947 to a spendthrift trust which existed prior to the effective date of the Act. The testator, John L. Borsch, died February 9, 1921. On June 3, 1946, the testator's daughter, Catharine Carr, the life tenant under the trust sought to disclaim her interest in the trust, pursuant to the aforementioned Act, thus terminating them, investing a fee simple and absolute title in the trust real estate in her son, the remainderman. Like the tax allocation statutes in this case, the 1947 Act purported to apply retroactively and to require express language to overcome the statute's presumption that the trust was susceptible to termination. The court, quoting from In Re Harrison's Estate, 322 Pa. 532, 533, 185 A.2d 766, 767 (1936), said: "Here appellant, the life beneficiary, seeks to terminate a trust under which she is to receive payments sufficient for her maintenance and by which she is protected from creditors and her own improvidence. This is in violation oftestator's expressed intention and of his right to dispose of his property as he sees fit." Such dispositive power is aproperty right entitled to the full protection of our laws. (citations omitted) The court then went on to reject, expressly, the notion that a person's property rights may not be enforced if the person is deceased. The court went on to conclude: The Act of 1945, supra, in terms, is made to apply to existing spendthrift trusts. It is, therefore, unconstitutional as applied to such trusts, being in 4 21-98-287 violation of Art. I, Sec. 9 of the Constitution of Pennsylvania. Borsch Estate, supra, 67 A.2d at 123. There is a strong argument that the same result should pertain here. Nonetheless, we decline to find the Act unconstitutional as applied to the facts of this case. This is not a case where the testatrix died before the effective date of the Act. In fact, in this case, the testatrix had actual notice of the effect of the Act on her Will. Moreover, one of the stronger presumptions in our law is that an enactment of the legislature is constitutional. Machon v. Com., Pa. Bd. of Probation and Parole, 72 Pa. Cmmwlth. 102, 455 A.2d 1279 (1983). As the court noted in Bilbar Construction Co. v. Bd. of Adjustment of East Town Twp., 393 Pa. 62, 141 A.2d 851 (1958): The rule is well established that the burden of proving clearly and unmistakably the unconstitutionality of a legislative enactment is upon the person so asserting. In Gottschall v. Campbell, 234 Pa. 347, 363, 83 A. 286, 292, it was said, -- "that one who asks to have a law declared unconstitutional takes upon himself the burden of proving beyond all doubt that it is so has been so often declared that the principle has become axiomatic." A legislative enactment can be declared void only when it violates the fundamental law clearly, palpably, plainly and in such manner as to leave no doubt or hesitation in the minds of the court. Sharpless v. Mayor, etc., of City of Philadelphia, 21 Pa. 147, 164. In Erie North-East Railroad Co. v. Casey, 26 Pa. 287, 300- 301, it was recognized that "The right of the judiciary to declare a statute void, and to arrest its execution, is one which, in the opinion of all courts, is coupled with responsibilities so grave ~ Despite the respondent's attempts to show that Ms. Bernardi was incompetent during the period crucial to our determination, the weight of credible evidence is that she was not. 21-98-287 that it is never to be exercised except in very clear cases; one department of the government is bound to presume that another has acted rightly. The party who wishes us to pronounce a law unconstitutional, takes upon himself the burden of proving, beyond all doubt, that it is so." Hadley's Case, 336 Pa. 100, 104, 6 A.2d 874, 877, succinctly states as the practical effect of the rule "All presumptions are in favor of the constitutionality of acts and courts are not to be astute in finding or sustaining objections to them." In this case, the testatrix became aware that, in the absence of express language to the contrary, her estate would not waive the right of recovery of federal estate taxes attributable to the Qualified Terminable Interest Trust. Notwithstanding, her Will contains no such waiver. We are unable to conclude with the requisite certitude that the application of 20 Pa. C. S.A. 3701 to the instant case violates constitutional property rights. Accordingly, we are constrained to grant the petition. ORDER AND NOW, this day of December, 2001, the United States estate tax of the estate of Dolores S. Bernardi is herewith apportioned and the respondents, Gary R. Bernardi and Cynthia Ann Getgen, are directed to reimburse the estate of Dolores S. Bernardi that portion of the estate tax attributable to the Qualified Terminable Interest Trust under the Will of Robert Bernardi; to wit, $361,390.00. BY THE COURT, Kevin A. Hess, J. 21-98-287 Samuel L. Andes, Esquire For the Estate J. Ross McGinnis, Esquire For the Petitioner Donald B. Kauffman, Esquire For the Respondent ESTATE OF DOLORES S. BERNARDI, deceased ANDREA RHYNE, Petitioner VS. GARY R. BERNARDI, Respondent IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 21-98-287 ORPHANS' COURT DIVISION IN RE: MOTION TO GRANT PRAYER TO AUTHORIZE THE PETITIONER TO INITIATE LEGAL PROCEEDINGS TO COLLECT ESTATE ASSETS AND MOTION TO GRANT PRAYER TO APPORTION THE UNITED STATES ESTATE TAX BEFORE HESS, J. ORDER AND NOW, this day of December, 2001, the United States estate tax of the estate of Dolores S. Bernardi is herewith apportioned and the respondents, Gary R. Bernardi and Cynthia Ann Getgen, are directed to reimburse the estate of Dolores S. Bernardi that portion of the estate tax attributable to the Qualified Terminable Interest Trust under the Will of Robert Bernardi; to wit, $361,390.00. BY THE COURT, Kevin A. Hess, J. 21-98-287 Samuel L. Andes, Esquire For the Estate J. Ross McGinnis, Esquire For the Petitioner Donald B. Kauffman, Esquire For the Respondent :rlm