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                                                      PRINTER'S NO. 1039

THE GENERAL ASSEMBLY OF PENNSYLVANIA


HOUSE BILL

No. 921 Session of 1989


        INTRODUCED BY GRUITZA, McVERRY, KOSINSKI, MAIALE, CHADWICK,
           HAGARTY, R. C. WRIGHT, WOZNIAK, HALUSKA AND PICCOLA,
           APRIL 3, 1989

        REFERRED TO COMMITTEE ON FINANCE, APRIL 3, 1989

                                     AN ACT

     1  Amending Title 72 (Taxation and Fiscal Affairs) of the
     2     Pennsylvania Consolidated Statutes, exempting spousal
     3     transfers from inheritance taxation; providing for the
     4     taxation of certain spousal trusts; and making technical
     5     changes.

     6     The General Assembly of the Commonwealth of Pennsylvania
     7  hereby enacts as follows:
     8     Section 1.  Section 1707 of Title 72 of the Pennsylvania
     9  Consolidated Statutes is amended by adding a subsection to read:
    10  § 1707.  Transfers subject to tax.
    11     * * *
    12     (d)  Trusts and similar arrangements for spouses.--All
    13  succeeding interests which follow the interest of a surviving
    14  spouse in a trust or similar arrangement, to the extent
    15  specified in section 1712 (relating to trusts and similar
    16  arrangements for spouses), are transfers subject to tax as if
    17  the surviving spouse where the transferor.
    18     Section 2.  Sections 1708(b) and 1711(k) and (m) of Title 72
    19  are amended to read:

     1  § 1708.  Joint tenancy.
     2     * * *
     3     (b)  Husband and wife.--[Except as provided in subsection
     4  (c), this] This section shall not apply to property and
     5  interests in property passing by right of survivorship to the
     6  survivor of husband and wife.
     7     * * *
     8  § 1711.  Transfers not subject to tax.
     9     * * *
    10     (k)  Property subject to power of appointment.--Property
    11  subject to a power of appointment, whether or not the power is
    12  exercised, and notwithstanding any blending of such property
    13  with the property of the donee, is exempt from inheritance tax
    14  in the estate of the donee of the power of appointment, except
    15  as provided in section 1712 (relating to trust and similar
    16  arrangements for spouses).
    17     * * *
    18     (m)  Husband and wife.--Transfers of property to or for the
    19  use of a husband or wife of the decedent are exempt from
    20  inheritance tax. Property owned by husband and wife with right
    21  of survivorship is exempt from inheritance tax. [If the
    22  ownership was created within the meaning of section 1707(c)(3)
    23  the entire interest transferred shall be subject to tax under
    24  section 1707(c)(3) as though a part of the estate of the spouse
    25  who created the co-ownership.]
    26     * * *
    27     Section 3.  Title 72 is amended by adding a section to read:
    28  § 1712.  Trusts and similar arrangements for spouses.
    29     In the case of a transfer of property for the sole use of the
    30  transferor's surviving spouse during the surviving spouse's
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     1  lifetime, all succeeding interests which follow the interest of
     2  the surviving spouse shall not be subject to tax as transfers by
     3  the transferor, but rather shall be deemed to be transfers
     4  subject to tax by the surviving spouse of the property held in
     5  the trust or similar arrangement at the death of the surviving
     6  spouse. Such succeeding interests shall be valued at the death
     7  of the surviving spouse and taxed at the tax rates applicable to
     8  dispositions by the surviving spouse. Any exemption from tax
     9  based upon the kind or location of property shall be based upon
    10  the kind or location of property held in the trust or similar
    11  arrangement at the surviving spouse's death.
    12     Section 4.  Sections 1716(a)(1) and (2) and (e) and 1730(1)
    13  and (2) of Title 72 are amended to read:
    14  § 1716.  Inheritance tax.
    15     (a)  Rate of tax.--
    16         (1)  Inheritance tax upon the transfer of property
    17     passing to or for the use of any of the following shall be at
    18     the rate of 6%:
    19             (i)  Grandfather, grandmother, father, mother[,
    20         husband, wife] and lineal descendants.
    21             (ii)  Wife or widow and husband or widower of a
    22         child.
    23         (2)  Inheritance tax upon the transfer of property
    24     passing to or for the use of all persons other than those
    25     designated in paragraph (1) or exempt under section 1711(m)
    26     (relating to transfers not subject to tax) shall be at the
    27     rate of 15%.
    28         * * *
    29     (e)  Compromise as to rate of future interests.--If the rate
    30  of tax which will be applicable when [a future] an interest
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     1  vests in possession and enjoyment cannot be established with
     2  certainty, the department, after consideration of relevant
     3  actuarial factors, valuations and other pertinent circumstances,
     4  may enter into an agreement with the person responsible for
     5  payment to establish a specified amount of tax which, when paid
     6  within 60 days after the agreement, shall constitute full
     7  payment of all tax otherwise due upon such transfer. Rights of
     8  withdrawal of a surviving spouse not exercised within nine
     9  months of the transferor's death shall be ignored in making such
    10  calculations.
    11     * * *
    12  § 1730.  Deductions not allowed.
    13     The following are not deductible:
    14         [(1)  The value of assets claimed for the spouse's
    15     allowance under 20 Pa.C.S. § 2102 (relating to share of
    16     surviving spouse).]
    17         (2)  Claims of a former [or surviving] spouse, or others,
    18     under an agreement between the former [or surviving] spouse
    19     and the decedent, insofar as they arise in consideration of a
    20     relinquishment or promised relinquishment of marital or
    21     support rights.
    22         * * *
    23     Section 5.  Section 1744 is amended by adding a subsection to
    24  read:
    25  § 1744.  Source of payment.
    26     * * *
    27     (e.1)  Trusts for spouses.--In the absence of a contrary
    28  intent appearing in the instrument creating the trust or similar
    29  arrangement, and in the absence of a contrary direction by the
    30  surviving spouse, the inheritance tax, including interest, due
    19890H0921B1039                  - 4 -

     1  at the death of a surviving spouse with respect to a trust or
     2  similar arrangement to which section 1712 (relating to trusts
     3  and similar arrangements for spouses) is applicable shall be
     4  paid out of the principal of the trust or similar arrangement.
     5  The payment shall be made by the trustee or other fiduciary in
     6  possession of the property and, if not so paid, shall be made by
     7  the transferee of such principal.
     8     Section 6.  This act shall apply to the estates of all
     9  decedents dying on or after the effective date of this act.
    10     Section 7.  This act shall take effect July 1, 1989, or
    11  immediately, whichever is later.













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