CHAPTER 37

APPORTIONMENT OF DEATH TAXES

 

Sec.

3701.  Power of decedent.

3702.  Equitable apportionment of Federal estate tax.

3703.  Apportionment of Pennsylvania inheritance tax.

3704.  Apportionment of Pennsylvania estate tax.

3705.  Apportionment of Federal generation-skipping tax.

3706.  Enforcement of contribution or exoneration of Federal        estate tax.

 

Enactment.  Present Chapter 37 was added February 18, 1982, P.L.45, No.26, effective immediately.

Prior Provisions.  Former Chapter 37, which related to the same subject matter, was added June 30, 1972, P.L.508, No.164, and repealed February 18, 1982, P.L.45, No.26, effective immediately.

§ 3701.  Power of decedent.

A testator, settlor, donor or possessor of any appropriate power of appointment may direct how the Federal estate tax or the Federal generation-skipping transfer tax due because of his death, including interest and penalties, shall be apportioned or may grant a discretionary power to another so to direct, but:

(1)  any direction regarding apportionment of the Federal generation-skipping transfer tax must expressly refer to that tax; and

(2)  any direction waiving the right of recovery of Federal estate tax, provided for under section 2207A of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 2207A), on property includable in the gross estate by reason of section 2044 of the Internal Revenue Code of 1986, must expressly refer to that right.

Any such direction shall take precedence over the provisions of this chapter insofar as the direction provides for the payment of the tax or any part thereof from property the disposition of which can be controlled by the instrument containing the direction or delegating the power to another.

(Dec. 16, 1992, P.L.1163, No.152, eff. imd.; Dec. 1, 1994, P.L.655, No.102, eff. 60 days; May 16, 2002, P.L.330, No.50, eff. 60 days)

 

2002 Amendment.  See section 14(a) of Act 50 in the appendix to this title for special provisions relating to applicability.

Cross References.  Section 3701 is referred to in sections 3702, 3705 of this title.

§ 3702.  Equitable apportionment of Federal estate tax.

(a)  General rule.--Subject to the provisions of section 3701 (relating to power of decedent), the Federal estate tax shall be apportioned equitably among all parties interested in property includible in the gross estate for Federal estate tax purposes in proportion to the value of the interest of each party, subject to the rules stated in this section.

(b)  Pre-residuary.--

(1)  No Federal estate tax shall be apportioned against a beneficiary of any pre-residuary gift made by will. Any Federal estate tax attributable thereto shall be paid entirely from the residue of the estate and charged in the same manner as a general administration expense of the estate, except that when a portion of the residue of the estate is allowable as a deduction for Federal estate tax purposes the tax shall be paid to the extent possible from the portion of the residue which is not so allowable.

(2)  No Federal estate tax shall be apportioned against a beneficiary of any pre-residuary gift made by inter vivos trust. Any Federal estate tax attributable thereto shall be paid entirely from the residue of the trust and charged in the same manner as a general administration expense of the trust, except that when a portion of the residue of the trust is allowable as a deduction for Federal estate tax purposes the tax shall be paid to the extent possible from the portion of the residue which is not so allowable.

(c)  Deductions.--No Federal estate tax shall be apportioned against an interest allowable as a Federal estate tax marital or charitable deduction (determined and valued without regard to any Pennsylvania inheritance tax or other state or foreign death taxes apportioned against such interest) except as otherwise provided in subsections (b) and (g).

(d)  Credits.--Any Federal estate tax credit for state or foreign death taxes on property includable in the gross estate for Federal estate tax purposes shall inure to the benefit of the parties chargeable with the payment of the state or foreign death taxes in proportion to the amount of the taxes paid by each party, but any credit inuring to the benefit of a party shall not exceed the Federal estate tax apportionable to that party. Any unified credit against Federal estate tax, credit for tax on prior transfers (sometimes called the credit for property previously taxed) or credit for gift taxes paid by the decedent or his estate with respect to gifts made by the decedent before January 1, 1977, shall inure to the benefit of all parties liable to apportionment in proportion to the amount of Federal estate tax apportioned against each party under the other provisions of this chapter. Any Federal estate tax credit for gift taxes paid by the donee of a gift made before January 1, 1977, shall inure to the benefit of the donee.

(e)  Election by spouse.--Property passing to a spouse who elects to take an elective share under Chapter 22 (relating to elective share of surviving spouse) shall be exempt from apportionment of Federal estate tax only to the extent provided in subsection (c).

(f)  Additional Federal estate tax.--

(1)  Any increase in Federal estate tax caused by the inclusion under section 2044 of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 2044) of a qualified terminable interest trust in the estate of a decedent shall be apportioned against that trust.

(2)  Any increase in Federal estate tax caused by a taxable event occurring in a qualified domestic trust under section 2056A of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 2056A) shall be apportioned against that trust notwithstanding the provisions of subsection (b) or (c).

(3)  Any additional Federal estate tax due because a qualified heir disposes of qualified real property or ceases to use it for the qualified use shall be apportioned against the qualified heir notwithstanding the provisions of subsection (b).

(g)  Present and future interests.--When both a present and a future interest are involved, the Federal estate tax apportioned, including interest and penalties, shall be paid entirely from principal, except as otherwise provided in subsection (h), even if the future interest qualifies for a Federal estate tax charitable deduction or the holder of the present interest also has rights in the principal or the principal is otherwise exempt from apportionment.

(h)  Interest and penalties.--Interest and penalties shall be apportioned in the same manner as the principal amount of the Federal estate tax unless the court finds it inequitable to do so by reason of special circumstances, in which case the court may direct a different apportionment of interest and penalties. To the extent the interest or penalties are apportioned to or are payable out of a residuary estate or a trust, they shall be paid from income or principal in the same manner as the Federal estate tax, subject to a fiduciary's power to adjust under Chapter 81 (relating to principal and income).

(i)  Values.--The values used in determining the amount of Federal estate tax liability shall be used for Federal estate tax apportionment purposes.

(j)  Gift tax.--Gift tax paid by the decedent and imposed on a gift by the decedent or his spouse within three years of the date of his death and included in his gross estate shall be treated in the same manner as though the amount of such gift tax had been a preresiduary testamentary gift by the decedent to the donee of the gift.

(Dec. 16, 1992, P.L.1163, No.152, eff. imd.; May 16, 2002, P.L.330, No.50, eff. 60 days; July 7, 2006, P.L.625, No.98, eff. imd.)

 

2006 Amendment.  Act 98 amended subsec. (h).

2002 Amendment.  Act 50 amended subsecs. (f) and (h) and added subsec. (j). See section 14(a) of Act 50 in the appendix to this title for special provisions relating to applicability.

1992 Amendment.  Act 152 amended subsecs. (a), (b), (c) and (d).

Cross References.  Section 3702 is referred to in section 3705 of this title.

§ 3703.  Apportionment of Pennsylvania inheritance tax.

The Pennsylvania inheritance tax shall be apportioned as provided in Article XXI of the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971.

(Dec. 16, 1992, P.L.1163, No.152, eff. imd.)

§ 3704.  Apportionment of Pennsylvania estate tax.

The Pennsylvania estate tax shall be apportioned in the same manner as the Federal estate tax.

§ 3705.  Apportionment of Federal generation-skipping tax.

Subject to the provisions of section 3701 (relating to power of decedent), the Federal generation-skipping tax shall be apportioned as provided by Federal law and, to the extent not provided by Federal law, shall be apportioned by analogy to the rules specified in section 3702 (relating to equitable apportionment of Federal estate tax).

§ 3706.  Enforcement of contribution or exoneration of Federal estate tax.

(a)  Duty to pay.--Parties liable for apportionment of the Federal estate tax, whether residents or nonresidents of this Commonwealth, shall pay the amounts apportioned against them at the time the Federal estate tax is due, without regard to any extension of time for paying such tax.

(b)  Power of fiduciary.--The fiduciary charged with the duty to pay the Federal estate tax may recover from parties liable to apportionment the amounts of Federal estate tax apportioned to them. If the fiduciary pays the tax apportioned against another party, the fiduciary may recover from the other party the tax payment so advanced, together with interest of 5% per annum from the date of payment.

(c)  Suspending distribution.--Distribution or delivery of property to any party, other than a fiduciary charged with a duty to pay the Federal estate tax, shall not be required of any fiduciary until that party pays the Federal estate tax apportioned to that party.

(d)  Court decrees.--Notwithstanding subsections (a) and (b), the court, upon petition or at an accounting or in any appropriate action or proceeding, shall make such decrees or orders as it shall deem advisable apportioning the Federal estate tax. The court may direct a fiduciary to collect the apportioned amounts from the property or interests in his possession of any parties against whom apportionment has been made and may direct all other parties against whom the Federal estate tax has been or may be apportioned or from whom any part of the Federal estate tax may be recovered to make payment of the apportioned amounts to the fiduciary. When a fiduciary holds property of a party liable to apportionment insufficient to satisfy the apportioned Federal estate tax, the court may direct that the balance of the apportioned amount of Federal estate tax shall be paid to the fiduciary by the party liable. Should an overpayment of the Federal estate tax be made by any party or on his behalf, the court may direct an appropriate reimbursement for the overpayment. If the court apportions any part of the Federal estate tax against any party interested in nontestamentary property or among the respective interests created by any nontestamentary instrument, the court, in its discretion, may assess against those properties or interests an equitable share of the expenses incurred in connection with the determination and apportionment of the Federal estate tax. If the fiduciary cannot recover the Federal estate tax apportioned against a party benefited, the unrecovered amount shall be charged in such manner as the court may determine.

(Dec. 16, 1992, P.L.1163, No.152, eff. imd.; Oct. 27, 2010, P.L.837, No.85, eff. 60 days)