A divided panel of the Commonwealth Court rejected the position of the Department of Revenue and held that a transfer to an irrevocable trust qualified as a transfer to a living trust excluded from realty transfer tax. Miller v. Commonwealth, No. 757 F.R. 2007 (Pa. Commw. Apr. 8, 2010). A living trust is a qualifying trust intended as a will substitute. 72 P.S. §8101-C. A transfer to a qualifying living trust is excluded from tax. 72 P.S. §8102-C.3(8.1). The Department argued that only a revocable trust can qualify as a living trust. The court held otherwise, relying on §7.1(a) of the "Restatement (Third) of Property (2003), which states that a will substitute is an arrangement established during a donor's life under which the right to possession or enjoyment of the property shifts outside of probate to the donee at the donor's death and substantial lifetime rights of possession or enjoyment are retained by the donor. Reviewing the terms of the trust, the court held that the trust met these requirements. Therefore it was a will substitute and qualified as an ordinary trust, notwithstanding that it was irrevocable. Consequently, the transfer to the trust was not subject to realty transfer tax.
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