Court Opinion

ID: 9785148
Source: CourtListenerOpinion
Date Created: 2023-08-30 21:06:13.247438+00
Date Added: 2024-06-11T07:36:07.945039
License: Public Domain

DISSENTING OPINION BY
Judge COHN JUBELIRER.
I respectfully dissent. The Realty Transfer Tax Act1 (Act) provides an exclusion from realty transfer tax for “[a] transfer for no or nominal consideration to a trustee of a living trust from the settlor of the living trust.” Section 1102-C.S(8.1) of the Act, 72 P.S. § 8102-C.3(8.1) (emphasis added).2 For this reason, the definition of a “living trust” becomes paramount to determining if a transfer is excluded from the realty transfer tax. Section 1101-C of the Act, in relevant part, defines a “living trust” as “[a]ny trust, other than a business trust, intended as a will substitute by the settlor.” 72 P.S. § 8101-C (emphasis added). In order for an instrument to qualify as a will substitute, it must first serve the essential function of a will or share the essential qualities of a will. Black’s Law Dictionary defines a “will” as an “instrument by which a person makes a disposition of his real and personal property, to take effect after his death, and which by its ovm nature is ambulatory and revocable during his lifetime.” Black’s Law Dictionary 1598 (6th ed.1990) (emphasis added). The essential, revocable nature of a will is also set forth in the Restatement (Third) of Property: Wills and Other Do-native Transfers, which provides:
a. scope and rationale. Because outright gifts and irrevocable trusts do not serve the function of a will, they are not wills and need not be executed in compliance with the statutory formalities required for wills. A will substitute, however, does serve the function of a will.
Restatement (Third) of Property: Wills and Other Donative Transfers § 7.1, Comment a (emphasis added). It is noteworthy that this Comment highlights the fact that irrevocable trusts do not serve the function of a will. This is in direct contrast to will substitutes, which, by definition, serve the function of a will. The Restatement’s definition of a “will substitute” cannot be read separately and apart from Comment a, which explains the drafters’ intent. Comment a instructively lists those instruments that serve as will substitutes and includes revocable inter vivos trusts, life insurance, pension accounts, transfer-on-death arrangements with banks, joint ownership with right of surviv-orship and annuities with death benefits. Irrevocable trusts are not included among the will substitutes in this list because, as the first paragraph of Comment a explains, irrevocable trusts do not serve the function of a will. I believe the majority opinion errs when it interprets the Restatement’s definition of “will substitute” in direct contradiction to the drafters’ intent as explained in Comment a.
A will substitute, such as a revocable trust or a beneficiary designation for life insurance or pension accounts, permits one’s property disposition to be changed at any time during his or her lifetime. This ability to change beneficiaries without limitation is critical to the ambulatory essence of a will or a will substitute. Because they are ambulatory or “living,” will substitutes are often referred to as “living trusts.” However, the Miller Trust specifically for*404bids this type of unrestricted ambulatory change in beneficiaries from taking effect during the joint lifetimes of the Millers. For instance, Section 4.03(C) forbids, inter alia, the Settlor’s spouse from appointing trust assets in favor of himself, his estate, his creditors or the creditors of his estate, and to anyone other than the Settlor’s issue and spouses of Settlor’s issue. In addition, although Section 4.04 provides a broad special power of appointment to the Trustees exercisable by their wills, it does not permit them to appoint the principal of the trust to themselves, their estates, their creditors, or the creditors of their estates. Most significantly, Section 4.02 prohibits the Trustees from making distributions of income to or for the benefit of the Settlor in the event the Settlor is residing in a long-term care facility for longer than thirty days. Section 4.02 also prohibits the distribution of trust principal to or for the benefit of the Settlor. The Settlor, being one of the Trustees, must abide by these limitations and cannot amend or alter them because they are irrevocable during her lifetime or until a will of either herself or her spouse may become effective. This irrevocability of certain trust provisions during the joint lifetimes of the Millers distinguishes the Miller Trust from a revocable trust wherein the settlor can change any of the beneficiary designations to anyone, to take effect either during or after one’s lifetime, without restriction.
In addition, and contrary to Miller Trust Sections 4.03 and 4.04, Section 7745(1) of the Uniform Trust Act provides that the property of a revocable trust is subject to the claims of the settlor’s creditors while the settlor is living. 20 Pa.C.S. § 7745(1). In contrast, the limitations found in Sections 4.03 and 4.04 of the Miller Trust, for example, prevent its assets from being subject to any potential claims of creditors. These irrevocable limitations prevent the Miller Trust from being a will substitute or an ambulatory instrument in its essential nature. Although we recognize that there are some features of this irrevocable trust that provide for alternative testamentary dispositions through powers of appointment exercisable by will, I have highlighted several critical features that are not ambulatory or “living.” These features are not in the nature of a will, but have other functions and purposes requiring ir-revocability during certain times. Therefore, this irrevocable trust serves certain functions unlike a will and, therefore, it cannot be a will substitute. It is axiomatic that one cannot intend something to be what it intrinsically can never be.
For these reasons, I must respectfully dissent from the majority opinion, which would include an irrevocable trust within the definition of a “will substitute.”

. Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 8101-C-8114-C.

. Section 1102-C.3 was added by Section 11 of the Act of July 2, 1986, P.L. 318, as amended.