Government Revenue Collection Policies That Make No Sense
People sometimes ask me where I get ideas for columns. I tell them the ideas come walking in the door. This does not mean clients necessarily although clients contribute their own tales. The frustration of dealing daily with some truly nonsensical rules provides almost endless fodder for stories. I strongly recommend writing as a form of therapy.
Take the Commonwealth of Pennsylvania, for instance. I mean, really, take it. Here are some examples.
· Estate Administration. – Inheritance Tax Returns for Spouses. Pennsylvania looks for money where there is none and never will be any. Several years back the Commonwealth decided that widows and widowers would have a zero% Pennsylvania Inheritance Tax on property they inherit from their deceased spouse. Even someone who is not mathematically inclined would realize that a zero% tax means that you do not owe taxes. Most Wills of married people that I have handled first leave everything to their spouse.
In a rational world, a government that is going to receive nothing from a tax would not require a taxpayer to file an Inheritance Tax return and Revenue employees would not spend time pursuing returns from zero% taxpayers. It is literally working for nothing.
In Pennsylvania, the zero benefit does not stop the Commonwealth from aggressively tracking Inheritance Tax returns when they want widows and widowers to file. Worse, it costs the Commonwealth money.
The reason why more people do not recognize the issue is that most married couples title their houses jointly as tenants by the entireties. They title their bank accounts and investment accounts jointly and name each other beneficiaries of life insurance and retirement accounts. Under these circumstances, property passes automatically to their spouse and it is not necessary to probate the Will and, so, it is not necessary to file an Inheritance tax return.
The issue arises when there is a bank account or investment account or some shares of stock titled only in the name of the deceased spouse. In order for a widow or widower to access the funds or to cash in the stock, she or he has to go through the probate process including filing an Inheritance Tax return which details all of the assets, attach all of the verifications and then multiply all of this by zero%.
On a telephone call from the Department of Revenue awhile back I noted in one case, “You realize this is a spousal <return>. You will not receive anything.” The caller stated. “I know. So when will the return be filed?”
In my own defense so as not to appear to be a scofflaw I should note that, sometimes the Executrix of her husband’s estate is frail herself and no one is interested in stepping into her shoes.
On a zero return, this is what the government should do. The widow or widower should be able to take the Will to the Courthouse and file a Verification that she or he is the only heir. The Register of Wills should be able to inspect the Will, issue short certificates allowing the widow to access the assets, and this should be the end of it. It would save both the surviving spouse and the Commonwealth time, stress and money.
The lesson for Pennsylvania spouses with modest estates might be – do not hold property in the name of one spouse unless there is a valid business or personal reason for doing so. You may want to jointly title instead.
· Estate Recovery. Estate Recovery is a Medicaid related program. Pennsylvania admittedly has no choice in this matter since the federal government has for many years required States to try to recover funds from the estates of Medicaid recipients over age 55. Having said this, the program, in my opinion, makes little sense.
· Except for homes of single Medicaid applicants which may be exempt, there is very little left to recover from a Medicaid recipient. The government has already determined that the person is indigent or she would not be on Medicaid. The government continues to monitor funds during life. The aggressive pursuit of the small bank account, the balance on a prepaid burial reserve, or the balance left in a personal needs account which receives $45 per month from a nursing home resident’s funds seems unproductive. It does, however, upset the family.
The idea that the government is going to recover huge sums of money from indigent estates makes no sense to me. Willie Sutton stated he robbed banks “because that’s where the money is.” Pennsylvania, in my opinion, looks in the wrong places.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.