Category Archives: Topics of Interest

PROPERTY TITLE IN A PAPER STREET

A paper street does not exist, but many can be found particularly on older subdivision plans. This could be a road or alley for which the developer set aside property that never was used for this purpose – it is an unopened street that shows up in recorded plans but, in reality, ends up being used as part of a yard or a wooded area next to your property. Since it does not appear in your deed, the question of actual ownership cannot be ignored because this affects what you can do with this property and who buy or sell it, for example.

The problem of the paper street is one that municipalities, townships, boroughs, and similar governmental bodies have come to recognize during the last 50 years or more, which is why paper streets tend to be found only in older subdivision plans. Most municipalities, for instance, have enacted ordinances regarding the creation of subdivisions that generally prevent the creation of paper streets, but this does not affect ones that already exist.

DRAFTING A SUBDIVISION AND “CREATING” PAPER STREETS

After you check the plan recorded for your subdivision at the Recorder of Deeds or similar county office, you can figure out if you live next to a street that is you never saw before. This was not the intent of the developer, who expected that the street or alley would be used. The paper street started out on paper but was supposed to become a real street. So, one might wonder what went wrong during this process.

The developers simply planned too much – the system of streets in the subdivision included more streets than were needed. You drive on some of the streets every day, and you watch weeds grow on others. The way that is developed usually involved the recording of the subdivision, in which the planned streets were dedicated to the municipality or borough, which would have to accept formally or informally the street as its own.

As set forth in Section 1961 of Title 36 in the Pennsylvania Statutes and enacted in 1889, municipalities and other governing bodies have 21 years to accept the land for the dedicated street after the plan has been recorded. See 36 P.S. §1961. When this is not formally accepted and is not used by the public for the 21-year period, which basically is a statute of limitations, then the local governing body is deemed to have abandoned the property, and a reversion occurs.

WHAT REVERSION OF OWNERSHIP MEANS HERE

One might expect that abandonment returns ownership to the original developer. However, the problem with this is that many developers did not remain in the community so, if they owned the reverted interest, they might not be around to be held accountable for the upkeep of the property that becomes a paper street. As spelled out in Rahn v. Hess, 378 Pa. 264, 269-270 (1954), the purchaser who acquires the property from the developer owns the reversionary interest unless the developer specifically retained that interest.

As a result, trees and other conditions on the paper street become the responsibility of the abutting property owners in the subdivision. With reversion occurring automatically, the abutting owners may not realize that they have this responsibility. In Pennsylvania, property owners whose lots abut a paper street generally own the street to its center line, even though there is no official record of this. Again, this is a principle confirmed in Rahn v. Hess, 378 Pa. 264, 270 (1954).

GOVERNMENTS: VACATE OR ABANDON AN UNWANTED PAPER STREET

Local governments can vacate paper streets before the 21-year period ends – they don’t have to accept the dedicated property and can make this official by adopting an ordinance, for example, in which the street is not accepted and any interest in the land is vacated. The only time that a municipality or borough can’t do this is when the paper street contains utility lines, for example, that it has to maintain and repair. On the other hand, the property owner cannot build a structure on the paper street that obstructs access to municipal water and sewer lines. Meanwhile, the abutting owners remain responsible for the property’s upkeep.

After abandonment, a municipality cannot decide to use the land without getting approval from the abutting owners. This is another indication of who really owns the property, but there still is nothing recorded, which limits possible uses by the actual owner.

PRIVATE EASEMENTS AND PROPERTY OWNERS IN A SUBDIVISION

Another limitation on the abutting owners is that all owners of lots within the subdivision have an easement that allows them to use the paper street as a right of way. Usually, this is of no consequence because the street never was laid out so there is no reason to use it when traveling by vehicle or foot through the subdivision. Additionally, as explained in Rahn v. Hess, 378 Pa. 264, 271 (1954), the Pennsylvania Supreme Court stated that this is a private contractual right that does not go away after a period of time.

Abutting owners who want complete ownership of their part of a paper street would have to get all other lot owners on the subdivision to sign waivers in which they give up their rights of way over the property. As explained in Estojak v. Mazsa, 522 Pa. 353 (1989), there are times that courts in Pennsylvania have recognized a doctrine similar to adverse possession has been recognized as a means of extinguishing easements when access to the right-of-way is blocked for 21 years, but attempts to get private agreements or to obtain court orders are time consuming and expensive. This has a role in title that an abutting owner may try to record, as we will discuss below.

BEGINNING THE PROCESS TO RECORD YOUR REVERSIONARY INTEREST

How would you take action to turn your reversionary interest into a recorded interest? Even if more than 21 years have passed since the original dedication was made, leaving the paper street abandoned by the local government, you would be wise to contact the local body in charge of zoning and related matters in order to find out if there will be any problems with moving toward having a deed drafted and recorded.

In these situations, there often is not much opposition, but you want to cooperate and attempt to gain cooperation in return. It could help to get an official declaration that the government has abandoned any interest in the property – this really isn’t required when the Statute of Limitations has expired and no interest involving utilities remains, though.

Then, you should approach all owners with property abutting the part of the street that you are claiming. Their consents are helpful, especially if the municipality is looking to have a petition to vacate presented, when necessary. At this point, you should be in position to move forward with the final steps.

Perhaps, the strongest factor motivating the owner of at least part of a paper street to obtain title that is recorded in the appropriate government office is to have the ability to do something with the property. While municipalities and townships that have abandoned these streets do not have a role in determining ownership rights in paper streets that they have abandoned, the owner may need a permit to improve or repair a driveway that extends onto what was a paper street. Having record title makes this easier to accomplish.

SECTION 1961 OF TITLE 36: THE STATUTE OF LIMITATIONS

It should be noted that an unopened street created before May 9, 1889 is not subject to 36 P.S. §1961 and would be handled differently than what is being discussed so we are looking at subdivisions laid out after that date. We are examining papers streets subject to §1961 since these are more commonly encountered and also make a somewhat complex issue somewhat more understandable. Under §1961, municipalities had to accept and open the dedicated street within 21 years of its creation as part of the recorded subdivision.

Once the governmental body acknowledges that sufficient time has passed for it to have abandoned any potential interest in the property, then an abutting owner can consider the remaining actions required for a deed to be recorded since ownership reverts to the abutting owners, generally to the center line of the street, under Pennsylvania law.

While title goes to the owner, there is no record of this, which is the purpose of the deed. You could ask the municipality to pass an ordinance officially abandoning the property, but this would not be the first choice – after all, doing this is bound to be noticed by other lot owners in the subdivision, making the easement issue more obvious. The preferable way does not extinguish the private easements but does not call undue attention to them, either.

ESTABLISHING THE CENTER LINE

The owners of the abutting properties can work out an agreement to handle the issue. The important step involves having the property surveyed according to the new property line, which can be at the center of the unopened street or a different line to which the parties consent. Zeglin v. Gahagen, 812 A.2d 558 (Pa. 2002), provides a good overview of the Doctrine of Consentable Lines, which can have some similarities to adverse possession although they are not identical.

GETTING A NEW SURVEY TO DRAFT A NEW DEED

The survey provides a legal description that is used in a new deed. Because the property add to the old deed actually is part of the original lot, the drafter of the new deed has the owner as the grantor and grantee, with the end result that the property of an abutting owner is combined into one parcel in a deed that then is recorded.

Due to the nature of this deed, you need to make sure that specific language is included. First, at the end of the legal description (also known as the recital), the deed would contain wording explaining how ownership reverted after 21 years based of 36 P.S. §1961 by operation of law and providing a corrected legal description of the property that uses the statute as the basis.

After the survey establishes the boundaries for your property that includes what was formerly the paper street, you would have a new deed that is drafted so that the title to all of the property owned by you can be recorded. This would give you formal title that would be found in a title search. The type of deed is important; with the other owners in the subdivision possessing a right of way over what has been a paper street, you only convey whatever interest you possess the land that you are conveying to yourself at this point. The entire interest in the property cannot be transferred due to the easements.

FINAL STEPS AND CONSIDERATIONS

Unless you have taken whatever action is necessary to extinguish the easements, this outcome is the best that you can obtain. You end up with the property interest that you purchased in the subdivision originally as well as the property interest that reverted to you when the governmental body abandoned the property comprising the paper street, generally after the 21-year Statute of Limitations expired after the subdivision developer dedicated this land to the governing body, such as a municipality or township, which did not use it for that purpose.

The Annuity: A Flexible Financial Tool

An annuity is a flexible financial tool that can be tailored to meet your needs and, possibly, have a role in your estate plan. The ability to deliver a stream of income makes annuities popular retirement planning tools. However, due to the variety of types and the multiple structures that can be used, the right match for a person’s needs can be created for other reasons as well.

What is an Annuity?

A basic definition of this financial tool is a good place to start when considering its use in financial planning. In the Internal Revenue Service’s Publication 575 (“Pension and Annuity Income”), an annuity is defined as a contract for a series of payments to be made at regular intervals over a period of more than one full year. You can choose to have the payments be either fixed so that you receive a definite amount each time or they can be variable, fluctuating based on investment performance or other factors. These payments could be immediate (the income payments are not delayed after the annuity is created) or deferred (payments are subject to an “accumulation” phase before the “payout” phase provides the income stream).

Also, you can buy the contract on your own, but these often are offered through a person’s em­ployer. The latter are considered “qualified annuities” because they are components of tax-advantaged retirement plans. The first type of contract creates a “nonqualified” annuity as it is privately obtained from insurance companies or financial institutions, in general. There are differences in tax treatment between these two types, and the reasons for obtaining one that is nonqualified is not necessarily related to concerns regarding retirement income. The focus here will be on the nonqualified annuity purchased by an individual.

Who Are the Key “Players” in its Creation?

Some basic definitions of the main “players” when an annuity is created is a good starting point because they are important in determining the way that this tool will be set up. The annuity owner, the annuitant, and the beneficiary are the three categories essential to consider when planning.

The annuity owner purchases the contract that creates this investment. She creates the terms for the annuity with the insurance company or financial institution that issues it. Key decisions include choice of the definition of the “annuitant,” the designation of beneficiaries, and the determination of who would have the right to sell the contract.

While the annuity owner is the purchaser of the annuity, this person may not be the annuitant, who is the individual over whose life expectancy income is paid. Owners commonly name themselves as the annuitants, but there are considerations that can lead to different choices. For example, the annuity owner might want someone younger as the annuitant since the longer life expectancy leads to smaller payments that are paid over a longer period, which extends the tax liability and reduces the taxable income on a yearly basis.

Many annuities are set up with only one annuitant (a “single life” annuity), but others may have a second annuitant, who is to receive payments at regular intervals after the first annuitant’s death. These “joint and survivor” annuities often involve spouses, but this is not always true. Since the second annuitant can be considered a beneficiary, the joint and survivor annuity will considered in more detail later.

Although the periodic payments are calculated based on the annuitant’s life expectancy, the annuity owner must remember that actuarial tables do not dictate an individual’s lifespan. If the annuitant dies sooner than would be predicted, this would leave some of the assets remaining to be distributed. The annuity contract needs to include provisions for who receives what would remain in this circumstance. Beneficiaries are important for this reason.

The beneficiary is the third key “player” when the annuity is being created. Two points to bear in mind are that there can be multiple beneficiaries and that organizations can be beneficiaries. In addition, although an owner can name himself as the annuitant, he cannot be a beneficiary of his own annuity.

Unless the contract requires the naming of an irrevocable beneficiary, the owner usually can change beneficiaries. Furthermore, the owner may be wise to have multiple beneficiaries because, if there are remaining investments after an annuitant’s death, the owner probably would want to be sure that someone is alive to receive these assets.

Some Considerations regarding Beneficiaries

With no beneficiary, an annuity can go through probate or estate administration, but the assets that it still holds may be surrendered to the insurance company or financial institution that issued the contract. Therefore, even without multiple primary beneficiaries, the annuity owner should consider possible contingent beneficiaries, who receive the primary beneficiaries’ payments when the annuitant outlives these beneficiaries.

When multiple beneficiaries are included, the annuity contract can provide for the death benefits to be divided into equal shares or by specified percentages among the beneficiaries. The owner could decide to go in a different direction when choosing a beneficiary, as well. Beneficiaries do not have to be individuals, but the contract owner should consider the legal implications here.

Entities are subject to different requirements as the beneficiaries of annuities. A possible choice for the annuity owner is to assign any remaining payments to a trust. However, after the trust receives this amount, it has five years to pay out these funds. This means that spreading out the taxation based on life expectancy is not possible, while this option does exist when payments are transferred to an individual as the beneficiary.

Choices that Depend on Why You Want an Annuity

While the “players” now have been defined, this does not answer what an annuity is good for. With its flexibility as a contract between the owner and an insurance company or financial institution, there could be a number of reasons that annuities may be appealing. However, we will look at common categories (and choices) that are considered when it is being set up.

One choice is between an immediate annuity and a deferred annuity. A person could decide on a deferred annuity in which taxation is deferred. This is a benefit when retirement planning and may be a good choice if you have made the maximum contribution to a 401(K) plan or an IRA. It would not be subject to any IRS contribution limits and can create a guaranteed stream of income payments during retirement. There would be taxation at ordinary income rates at that time, and there could be annual charges from the financial institution or insurer that issued the contract. They also are likely to be subject to a 10-percent penalty from the IRS for withdrawals prior to the age of 59½.

The choice of deferred payments can be paired with either variable or fixed income payments. A deferred variable annuity is one in which the issuer of the policy places your assets in riskier investments. People with longer time horizons are better candidates for this type of annuity because they have the ability to weather market fluctuations that tend to occur during shorter investment periods. Payments from this annuity type depend on the success of the investments made with the assets that were traded to establish it.

A more conservative investor who is looking to set up guaranteed payments for a number of years after she retires probably would lean toward a deferred fixed annuity. Typical of all fixed annuities, this is not subject to market risk but instead makes regular periodic payments of specified amounts to the annuitant. It could produce earnings that compound on a tax-deferred basis, although withdrawals prior to 59½ years of age might incur the IRS’s 10-percent penalty.

Choosing an immediate annuity results is smaller periodic payments. It may appeal to someone who is or soon will be retired because the wait for the payment stream to begin is not an issue here. The tradeoff involves the acceptance of a smaller amount of guaranteed income for life or, at least, a set period of time (if a “fixed-period” annuity is chosen). Generally speaking, the owner should have a large lump sum of money to trade for a cash flow that extends into the future when creating an immediate annuity. However, there is an example below in which this asset “rule” does not hold.

This often is paired with a fixed income stream. However, the owner may be able to set up cost-of-living adjustments for the income stream over the annuity’s timeframe by paying an extra cost for this benefit.

Annuities May Help Even People of Modest Means

While an annuity can provide a stable source of financial support during retirement for many individuals, it is flexible enough to be adapted to individual circumstances. This can involve tailoring the annuity based on such variables as age, income, and net worth. Also, the amount available to invest will dictate the options that are realistic – even a modest investment might be used to create a workable annuity. Remember that reasons beyond increasing retirement income can be met through this financial instrument, and they should be examined to determine if such an investment might be desirable depending on a given situation.

For instance, one possibility that may be overlooked concerns Medical Assistance. The individual on Medical Assistance would have a relatively low income. This person might look at a single-premium immediate annuity since one often can be obtained even when there are rather limited assets available. To be used to supplement income in this situation, the annuity has to be irrevocable, actuarially sound, and – importantly – payable to the Medical Assistance agency that would be designated in Pennsylvania as the beneficiary after the recipient’s death.

Single-premium immediate annuities also could be useful for retirees who are over the age of 59½ but not yet 70½. If an individual wants to delay the payment of Social Security benefits as well as any tax-deferred distributions for as long as possible, then he or she might consider this type of annuity to provide a stream of income to realize this goal.

Increasing Usefulness by Purchasing Riders and Other Options

As has been noted previously, an annuity is a flexible tool. This flexibility can be increased when the owner purchases various riders or other options. For instance, a person might want to have a rider that provides for accelerated payouts in the event of a diagnosis of a terminal illness.

Riders and options often are added on behalf of beneficiaries. The decision to create a deferred or immediate annuity can influence this choice. With deferred annuities, beneficiaries receive the total amount contributed to the account if the annuitant dies during the accumulation phase and receive the amount remaining in this account after payments that were made to the deceased annuitant have been subtracted during the payout phase.

However, with many immediate annuities, such as a lifetime immediate income annuity, the issuing company keeps any money that remains at the annuitant’s death. The owner might purchase a refund option or a rider for a term certain regarding the annuitant’s life so that beneficiaries can get whatever remains if the annuitant dies when the option or rider would be effective.

A standard death benefit rider may be desirable when it is needed to designate beneficiaries for the annuity if the remaining funds after an annuitant’s death would be forfeited to the issuing company. This is the most basic rider of this type. Other death benefit riders can be used to affect the amount received by beneficiaries, as well. Examples include “return of premium” riders (this equals greater of the market value of the contract and the sum of all contributions minus fees and withdrawals) and “stepped-up” death benefit riders (beneficiaries receive the highest amount using the values of the contract on the anniversaries of the purchase date, with fees and withdrawals subtracted). The basic rule to remember is that a rider which increases the amount going to beneficiaries also will increase the annuity owner’s cost to add it.

A Look at Death Benefit Payout Options

Death benefit payout options involve how the benefit will be paid to beneficiaries instead of how much can be paid. Three options commonly exist for beneficiaries who are not spouses of the annuity owner. The lump-sum distribution transfers the designated funds in a single payment. A “non-qualified stretch” payout provides beneficiaries with minimum payments stretched out over their life expectancies. Finally, the five-year rule payout option allows beneficiaries to make withdrawals during a five-year period or receive the entire amount in the fifth year.

A surviving spouse who is a named beneficiary has an additional option here. The spouse could continue the annuity contract as the new owner and – if the deceased spouse was the annuitant – step into that role, taking over the stream of payments, which delays immediate tax consequences that other beneficiaries face. This is known as “spousal continuation.”

The Joint and Survivor Annuity

This leads again to consideration of “joint and survivor” annuities. It is important to remember that the beneficiary does not have to be a spouse. However, non-spouse beneficiaries again have less flexibility than a surviving spouse would have.

With a joint and survivor annuity not involving a spouse, the beneficiary has the right to receive a payment stream instead of a lump sum of what assets remain upon the death of the annuity owner. This beneficiary lacks the ability to change any terms of the annuity contract, though. As a result, any access to the annuity’s funds continue to be controlled by deceased owner’s contract.

When the surviving spouse is named as beneficiary of a joint and survivor annuity, she can transfer the contract into her name and assume all rights from the initial agreement. Based on the terms of the original contract, the spouse may have the ability to accept all remaining payments and any death benefits, as well as the right to choose beneficiaries (if the predeceasing spouse could have done so).

An Overview of the Topic of Taxation

Taxation of nonqualified annuities is complicated so what follows merely provides information to raise awareness of things to review. While employer-sponsored programs and commonly recognized retirement programs make payments that are not taxed, nonqualified annuities provide payments that are taxable income in Pennsylvania, as well as for federal income tax purposes. To the extent that the distributions that are taxable for federal income tax purposes, they also are taxable as interest income in Pennsylvania.

Nonqualified annuities must use what is termed the “general rule” for federal taxation. Under this rule, payments can consist of a tax-free part of an annuity payment that is based on the ratio of the cost of the annuity contract to the total expected return, which is the total amount that the annuitant expects to receive. The expected return is calculated from IRS life expectancy (actuarial) tables. You can look at IRS Publication 939 for more details regarding this rule.

Beneficiaries also face income taxation. They owe income tax on the difference between the principal paid into the annuity and its value at the annuitant’s death (minus the principal that was paid to fund the annuity initially). If a beneficiary receives this amount as a lump sum, then income tax is due immediately on this amount. If the payments are arranged to be spread out over time, then the taxation will be spread out as well.

When a single premium was paid for an annuity with named beneficiaries, then the annuity represents a return on an investment, which is subject to inheritance tax in Pennsylvania. It would be listed on Schedule G (Inter-Vivos Transfers and Miscellaneous Non-Probate Property) of an inheritance tax return. Notably, the $3,000 exclusion for transfers within one year of death that is mentioned in the instructions to this schedule would not apply in this situation.

When an annuity fund creates the future interests that are reported on Schedule K of the inheritance tax return, the value of the fund creating these interests is reported as part of the estate assets on whichever schedule from Schedule A through G of the tax return is appropriate. As always, you probably want to consult a tax expert about up-to-date information on the various ways that annuities can face taxation, of course.

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With the extensive varieties of annuities that are available and the ability to customize these contracts by working with annuity experts who have a solid understanding of how to tailor this financial tool to meet a client’s needs, an annuity can be fashioned for someone who possesses only modest assets to apply for this purpose. If the size of any death benefits also is a concern, the contract owner also needs a well-crafted annuity that provides for a better future for a beneficiary for whom financial protection after the owner’s death is a goal. Remember that there are numerous possibilities that can be discussed in order to make the right choice for your specific circumstances.

Elder Law and Estate Planning

Elder law and estate planning are not two terms for the same area of law. However, they are related. Estate planning is an important part of the work that an elder law attorney does. At the same time, the attorney generally takes a broader, more holistic approach in an elder law practice.

To paraphrase the National Elder Law Foundation’s definition of elder law, this area of practice involves counseling and representing of older persons and their representatives in matters regarding the legal aspects of health-care and long-term care (LTC) planning. Additionally, the attorney educates clients about and helps them to obtain public benefits. The definition includes discussing the possible need for surrogate decision-making while addressing the issue of legal capacity. The attorney and client also need to talk about the conservation and, ultimately, disposition and administration of estates. After the consideration of tax consequences, the attorney looks at how to implement the client’s decisions about these estate issues.

As the diversity within the definition suggests, the elder law attorney needs good resources in numerous non-legal fields. This may include access to medical professionals, financial advisors, and social workers, for example. The legal goals often cannot be achieved without first addressing non-legal issues. The lawyer needs to deal with them successfully for the overall result to be positive. Often, topics include resolving family conflicts, understanding a client’s illness, and adapting to any consequences of those health problems.

Elder law is a challenging legal area. To help the client, an attorney must focus on aging, disability, and incapacity, as well as the difficulties that a person faces with each problem. Then, the attorney has to assist the client in creating a plan to deal with all of these. They need to work together to plan for health-care issues. Meanwhile, they have to look at long-term care since the client may require this at some point. The attorney must review obstacles to LTC financing and look for ways around these. In addition, barriers to essential assistance and services will exist. To overcome these, the attorney works with the client and family members to find solutions. Due to all of the issues that an individual may face, this practice area involves a powerful need for comprehensive estate planning.

In general, the elderly have a greater sense of urgency to prepare documents that are necessary due to serious illness or death (as with a Last Will and Testament). At the same time, attorneys in elder law often have clients who have special needs caused by disabling diseases. This makes sense because the issues often are similar. Both need to deal with possible incapacity in the relatively future while many younger people in good health may not view these matters as important at the moment. At this point, I will look at the elder law issues that have been raised from the perspective of individuals with special needs since they have to plan for the same types of problems regardless of age.

 

Special Needs Planning and Multiple Sclerosis

 

The National Academy of Elder Law Attorneys (NAELA) teamed up with the National Multiple Sclerosis Society and the Stetson University College of Law to prepare a video series for people with MS. This disease tends to strike people between the ages of 20 and 50. In addition, women get MS at a much higher rate than men do. Its progression is not predictable. However, MS often becomes disabling over time because it attacks a person’s central nervous system. This results in the flow of information within the brain, and between the brain and body, being disrupted.

Since the disease’s progression is unpredictable, the individual diagnosed with MS and family members need to look at the complex legal and other issues that may arise. To do this, they should seek the assistance of an attorney with experience in elder law and special needs law.

These videos focus on planning for possible incapacity and accessing LTC benefits. As a result, they can help not only people with special needs, such as those caused by MS, but also the elderly. In addition, anyone interested in an introduction to various estate planning documents can find benefit.

 

The Video Series on MS – Looking at Legal Issues & Plans

 

The five videos in this series are:

  • How Elder & Special Needs Law Attorneys Can Help People Diagnosed with MS (Presented by Craig C. Reaves, CELA, Fellow, CAP)
  • Legal and Care Planning for Younger People with MS (Presented by Robert Brogan, CELA, CAP)
  • Coordinating Attendant Care and Available Resources (Presented by Stephen Dale, Esq., LLM)
  • Family Law and Divorce: When a Partner Has MS (Presented by Patricia E. Kefalas Dudek, Esq., CAP, Fellow)
  • Property and Health Care Decision-Making Agents: An Overview (Presented by Mary Alice Jackson, Esq., Fellow)

 

I have placed two of the videos dealing with the types of issues that I mentioned earlier below. They also discuss a number of legal documents that are useful when these issues arise. The presenters review various kinds of trusts and the purposes they serve. Additionally, they talk about medical and financial powers of attorney, which can benefit everyone. A person with MS understands some of these benefits more than the average person. For example, powers of attorney can make a guardianship, which strips a person of at least some civil rights, unnecessary. While a debilitating disease may make the possibility of a guardianship seem more real, anyone can be in an accident that results in incapacity and the need for a substitute decision-maker. Powers of attorney fill the void here.

These two videos also look at other tools for planning for events that can occur during anyone’s life at some point.  This includes what commonly is called a Living Will in Pennsylvania. A Living Will permits you to make end-of-life choices while you still are able express your preferences.

This video provides an overview of Property and Health Care Decision-Making Agents:

I also included the video about Legal and Care Planning for Younger People with MS:

 

 

NAELA: A Useful Resource for Elder Law & Special Needs Law

 

All of the videos in this series can be viewed on the NAELA website. In addition, you can find a lot of other useful elder law materials by visiting this website at www.NAELA.org.

This video series highlights some of the benefits provided by attorneys experienced in elder law and special needs law. As the population in Pennsylvania and elsewhere ages, people increasingly will need attorneys who are well versed in elder law and special needs law. An attorney who can help you handle the often overlapping legal, medical, and financial decisions as you plan for an uncertain future can be very helpful. The National Academy of Elder Law Attorneys is a good source for this legal assistance. Remember that estate planning is a major part of elder law so NAELA attorneys can be good resources in this area. They also can provide information about long-term care options and how to access these services. Considering what you may need and want whenever you might become incapacitated is important. Having a documented plan in place to deal with this possibility is essential.

Debt Forgiveness and Income Tax

Debt forgiveness, which is the cancellation of a debt that you owe to someone, often can lead the IRS to see an increase in your income tax bill. However, there is no simple rule to be applied to every situation. For example, if you are in bankruptcy, the IRS is unlikely to see income that can be taxed after debt forgiveness. On the other hand, when a commercial lender cancels your obligation to repay a debt, you may find yourself with income equal to the amount of debt forgiven. In this situation, you do not have any money in hand, but you can expect a tax bill on the amount of money that the lender decided could not be collected from you. Your former lender usually should send you an IRS Form 1099-C (“Cancellation of Debt”) to let you know that the debt that you no longer owe triggered an increase in income taxes at the time of debt forgiveness. Remember that the IRS also gets a copy of the 1099-C and is unlikely to forget the incomes taxes that you now owe.

You may wonder why you receive debt forgiveness income when you cannot repay a loan. One point that will be discussed later is that the IRS does not see income when a debt is cancelled so the explanation here is general. The idea behind debt forgiveness resulting in income begins with the fact that the funds you originally borrowed were not income since those funds represented money loaned to you that had to repay to the lender. When a debt is forgiven, you no longer have to have any obligation to pay back whatever amount of the loan remains unpaid – essentially, your wealth has increased now that you have money that you can keep.

As long as none of the exclusions or exceptions (which will be mentioned below) regarding debt forgiveness income applies, the formula for calculating income simply involves subtracting the fair market value of the property from the debt owed at the time that the lender took a specific action, such as foreclosure or repossession. Also, you may receive a capital gain due to foreclosure, for example; this is not debt forgiveness income but usually occurs when the property’s fair market value is greater than its adjusted basis (approximately your original purchase price plus the costs from major improvements). An amount could be excluded due to the length of time that this was your personal residence during the last five years – I won’t go into the details here because the focus is on debt forgiveness for the moment.

There are several exceptions when debt forgiveness does not lead to taxable income. The examples provide general rules about various exceptions, which could be subject to exceptions themselves – consulting with someone who handles these matters about your specific situation always is advisable.

In general, a debt that is cancelled through a gift, a bequest or devise, or an inheritance is not considered income. Certain student loans also provide that all or part of the debt incurred to attend a qualified educational institution will be canceled if the person who received the loan works for a certain period of time in certain professions for any of a broad class of employers. If your student loan is canceled as the result of this type of provision, the cancellation of this debt isn’t included in your gross income. To qualify for this treatment, the loan must have been made by entities in one of three categories: 1) the federal government, a state or local government, or an instrumentality, agency, or subdivision of one of those governments; 2) a tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, having employees defined as public employees under state law; or 3) an educational institution (an organization that has a regular faculty and curriculum as well as regularly enrolled students who attended educational activities at that place). Other criteria have to be met for these loans not to be income if they are cancelled. One major reason for debt forgiveness here is to encourage students to serve in occupations or areas with unmet needs in which the services provided are for, or under the direction of, a governmental unit or a tax-exempt Section 501(c)(3) organization.

There also is an exception for deductible debts. Most individuals use the cash method of accounting so income is seen when the money is received while expenses are counted when money is paid for goods or services. Therefore, when a debt was supposed to be paid but the obligation to do so was forgiven, you would not realize income at that time if payment of the debt would have been a deductible expense for you.

The Home Affordable Modification Program (HAMP) also has some exceptions to debt forgiveness income. Reduction of your principal mortgage balance generally is not income when Pay-for-Performance Success Payments and PRA investor incentive payments are involved. Meanwhile, when the principal balance is reduced due to Principal Reduction Alternative under the same program, you should expect that you have taxable debt forgiveness income. Any exception to possible debt forgiveness income can become complicated; again, seeking a professional’s assistance is the best way to protect yourself from making costly mistakes in this area.

After any possible exceptions are reviewed, you then look at the exclusions. For individuals, some of the most common situations that are excluded from consideration as income from the cancellation of a debt would be the following. The most common one probably involves bankruptcy – if a debt is discharged in a bankruptcy case, then it cannot be counted as income from debt forgiveness. Insolvency, which involves a situation when your assets have a fair market value that is less than the amount of all of your debts, also would exclude you from having debt forgiveness income. However, this is not easily determined so you would be wise to have a tax professional examine your financial position to determine if you are insolvent.

Another category of exclusion that is complicated and would require the help of a tax professional usually deals with certain farm debts. The IRS also has noted that non-recourse loans are not subject to debt forgiveness. These loans permit a lender to repossess the property that you financed with the unpaid debt or, if this does not apply, the property that you used as collateral in the event that you defaulted on the loan. There is no personal liability for the default on a non-recourse loan, which is why you do not gain taxable income from the debt’s cancellation. On the other hand, this type of loan still could result in a capital gain when the property is sold.

Exceptions should be applied before you apply the exclusions because their effects on “tax attributes” of yours are different. Unlike exceptions to tax forgiveness income, exclusions require you to reduce tax attributes, which include certain credits and losses as well as the basis of assets. Remember that, while income due to debt forgiveness can seem to be a relatively simple concept, there are many twists to this concept of which you must be aware, and the only way to approach this is to consult with a tax professional about all of the implications that ultimately will impact your tax bill.

There is one final word of caution when the possibility of income from debt forgiveness exists. Whether or not a Form 1099-C was received does not determine income tax implications. The IRS requires these forms only under certain circumstances. When a creditor cancels a debt of less than $600, you may not get a Form 1099-C. However, you must look at the possibility that you received income that is taxable due to debt forgiveness despite the absence of the 1099-C because the IRS would look for income in this situation and will not be do forgiving if you neglected to pay tax that you owed.

Length of Separation in Divorce & Its Impact

In 1980, Pennsylvania’s Divorce Code underwent a monumental change. Previously, one spouse had to prove that the other spouse was at fault for the marriage’s breakdown due to such reasons as adultery or indignities (a course of conduct making a spouse’s condition intolerable and life burdensome). She or he also needed to be the “injured and innocent” spouse, meaning that the other spouse was the primary cause of marital discord. 1980 brought “no-fault” divorce, which could be based on the parties’ consent that the marriage was irretrievably broken or based on the length of separation due to the marriage’s irretrievable breakdown. Because the length of separation seems likely to change in the near future, this is the focus here.

In all no-fault cases, one party claims the marriage is irretrievably broken – marital difficulties have caused an estrangement leaving no reasonable likelihood of the parties getting back together. When one spouse won’t consent to a divorce, the no-fault ground focuses on living “separate and apart” for a certain length of time. A separation is a fact-based determination. There is a presumption that the parties separated on the date the divorce complaint was served, but a spouse can choose a different date if the facts support it. Separation doesn’t require living in different residences – living separate lives is what matters. The end of sexual relations and financial independence are factors that help to prove separation. Communicating the intent to separate also is an important fact.

A not-too-uncommon question is how sex between separated spouses affects a period of separation. Involvement one time shouldn’t end the original separation. However, occasional intercourse could be an important fact causing a judge to decide the separation has ceased. An attempt to reconcile for a month or two could end a separation, too. If the spouses break up yet again, the separation starts all over again.

The ability to obtain a divorce due to the length of separation has important implications. Before no-fault divorce in Pennsylvania, only the “injured and innocent spouse” could obtain a divorce. No-fault grounds mean that even a spouse whose behavior causes the marriage to fall apart can obtain the divorce. Additionally, if a no-fault ground exists for granting the divorce, then a fault-based divorce cannot be obtained. The length of separation required can come into play here. If one spouse won’t consent and the parties haven’t been separated long enough for a non-consensual no-fault divorce, then the spouse who files might seek a divorce based on fault under these circumstances. However, when the required separation period becomes shorter, fewer spouses will have to choose to pursue a fault ground here – if the length of separation is reduced to one year in Pennsylvania, the difficulty of pursuing a divorce on a fault ground would make it less attractive and necessary as the path to obtaining a divorce.

A divorce based on the length of separation affects property and related issues, too. Although the following does not directly deal with the issue of length, spouses who begin living separate and apart have a date of separation. This matters because property acquired after this date is presumed to be non-marital and does not automatically become subject to equitable distribution. (An important point about presumptions in law is that they are not rules without exceptions; instead, when someone gets the benefit of a presumption, the other party can rebut it with evidence overcoming the presumption.) A longer period of separation generally will mean the parties will claim more property as being acquired after the separation and, therefore, not subject to equitable distribution.

A divorce case often involves issues beyond the divorce itself, including property distribution, custody, and support. At one time, divorces in Allegheny County generally would be subject to automatic bifurcation, which meant that the divorce was granted before the remaining claims were resolved. In 2005, the Divorce Code was revamped so that bifurcation became the exception. For the exception to apply in a divorce based on the length of separation, a party has to establish specific grounds for the divorce as well as compelling circumstances favoring bifurcation for the marriage to end before economic claims are decided. The court wants to see that the dependent spouse, in particular, receives economic protection during a bifurcated divorce.

While different counties may be more likely to allow bifurcation, it should be remembered that the statute doesn’t favor bifurcation. Therefore, a party in a divorce based on length of separation could have to wait for the required separation period to pass and then wait even longer for other claims to be decided before receiving a divorce decree. If the period of living separate and apart becomes one year, this should result in a shorter period overall for a decree in divorce even without bifurcation.

A final note about changes in the length of separation: the last change occurred in 1988 and affected any separation that began after February 12th of that year. If you separated on February 13th or later, you had to wait two years while a separation that began on February 12th still was subject to a three-year separation. Whether this approach would be used again isn’t known yet. However, it is something to think about if you’re considering a possible separation and divorce right now.

When is a Power of Attorney in Effect?(Pt 2)

In the previous post, I took a brief look at various powers of attorney found in Pennsylvania’s laws and discussed how and when they take effect. However, the issue of timing regarding when a financial power of attorney can be used often is something that the principal who would be giving the power wants to address in the document due to concerns such as loss of control and possible abuse. The topic of timing in combination with varied reasons for having a financial power of attorney is the subject of the second part of this discussion of powers of attorney in Pennsylvania.

As your power of attorney is being drafted, you and the attorney should discuss its focus or purpose as well as how to use specific powers to achieve this. There are situations that can be handled by a more limited power of attorney. This limitation may mean that it only can be used by your agent for specific periods of time. If not specified, Pennsylvania law presumes that a power of attorney is durable, however.

The term “durable” means that it is in effect and, technically, could be used by your agent from the moment when it is executed (or, to put it more simply, when it is signed). People often feel that this means that they are giving away the authority to handle financial matters, even though they are capable of doing so, and worry about the power being abused. This, in turn, can spark interest in limiting when the document will be effective. Such restrictions could make sense, depending on the purpose for this document.

A non-durable power of attorney can be used by your agent only when you are not incapacitated. This generally is when you least need to have one. As an instrument of estate planning, this would have little use because you would not need someone handling financial affairs to carry out the objectives of your estate plan while you are capable of doing so.

However, a non-durable power of attorney can be useful to give someone the authority to handle a transaction when you are not able to be present for some reason. The non-durability combined with the limited scope (for example, the authorization for an agent to complete the sale of a vehicle) can make this useful because, in the example, you can sell the vehicle even though you cannot be present and the document only exists until the specific transaction is accomplished.

In other scenarios, a durable power of attorney makes more sense. You might not like the sound of giving your agent the power to handle your banking transactions or to sell your real property (which might mean the house in which you are living). However, if you are handling your affairs, it would not be that easy for someone to take over. If the agent would try to do this, you can put an end to the attempt by revoking the power of attorney, which is easy to do. An agent who misuses this power can be subject to civil and criminal penalties, and you are likely to know if your agent is making such attempts.

For example, to sell your house, the agent would have to record the original of the document in the appropriate office in the county in which the property is located and would have to show the property to prospective buyers. Meanwhile, monthly statements from your financial institution would reveal any problems involving transactions that you did not authorize.

Also, your choice of the agent should reduce the likelihood of abuse of power – you need to trust the person you name as your agent. While this is no guarantee, you should not name someone as your agent if you have doubts about his or her trustworthiness. Instead, this would be a situation in which you might want to wait to get a power of attorney.

Some people prefer to have a “springing” power of attorney, which springs into effect when a specified event occurs. Often, the event involves the person becoming disabled or incapacitated because this is when someone would be needed to handle financial and other affairs. The potential for problems exists because you need a well-defined point at which the power of attorney springs into effect.

Disability and incapacity should be determined by medical professionals. There may not be a doctor available when this occurs so there could be a lag in time before someone can act as your agent. There also could be difficulty in getting a doctor to sign an affidavit acknowledging your condition. Then, if you no longer are disabled or incapacitated, you should get another affidavit stating this and making the springing power ineffective again.

In the end, a durable power of attorney usually is the best choice. The power is least likely to be abused when you can handle your own affairs, and you can easily revoke it during this time. Periods of disability or incapacity are when the power of attorney has the greatest potential for abuse, but the likelihood is limited when you take the time to choose someone you trust to be your agent. Finally, a financial power of attorney must have an acknowledgment signed by your agent detailing the responsibilities of an agent and noting the consequences of ignoring them, which helps to reduce any temptation that might exist.

When Is a Power of Attorney in Effect?(Pt 1)

A Power of Attorney can be useful for numerous reasons. For instance, the importance of a financial power of attorney often is seen in estate planning but can come into play for other purposes as well. For this reason, it is the prime focus here due to the potential impact of its use, which makes many people reluctant to make this power durable (which will be defined below). Of course, there are reasons beyond financial matters for needing a power of attorney. Pennsylvania has statutes that encompass other types of powers of attorney and that address when these powers are in effect.

For example, under Pennsylvania law, a “mental-health power of attorney” gives you the opportunity to choose someone (known as your “agent”) to make a wide range of treatment decision if you are experiencing a mental-health crisis. However, the same law also limits the lifespan of this document to two years from the date that you sign it into effect (unless you revoke it sooner or it is in effect when the two-year mark is reached). Within this time period, this power of attorney can be used by your agent when an attending physician determines that you are not capable of making decisions regarding mental-health treatment. When the attending physician decides that you can make these decisions once again, then your agent ceases to have authority.

A “health care power of attorney” is more common and often is combined with the financial power of attorney in an estate plan. Pennsylvania has a set of laws focusing solely on this legal tool and defining when it is legally relevant. A health care power of attorney is valid until you revoke it, unless you have specified a time when this document no longer is valid. It should be noted that, while it may be valid, this does not mean that it can be used by your agent named in the power of attorney at all times. Instead, it only becomes effective when the attending physician finds that you lack capacity to make these decisions and ceases to have power when the attending doctor finds that you are able to make health care decisions again.

Meanwhile, powers of attorney that deal with financial matters tend to have more variations and need to be drafted carefully to meet your objectives, leading to careful consideration of how and when they can be used. In the list of statutory powers regarding a power of attorney, you currently will find 22 powers, of which 19 are financial in nature. These range from transactions involving tangible personal property to investments in stocks, bonds, and other securities to disclaiming of an inheritance.

The potential scope and consequences of these powers can cause a principal, who is the person giving authority to her or his agent, to be hesitant to want a power of attorney in the first place. This is when you need to look at the flexibility of this document to see if one can be drafted to meet your needs and protect your peace of mind.  In the next post, a closer look at financial powers of attorney and when you might want them to be in effect for your agent’s potential use will be undertaken.

Habitability & Residential Leases, Pt 2

Now that we will looked at what the implied warranty of habitability is in residential leases, we should look at your options for enforcement of this right. Court cases have stressed that the landlord must be aware of the circumstances before you take action to solve the problem. Because the stakes are so important (having a place to live and living in a place that is safe, sanitary, and healthy), you should provide notice to the landlord in writing. You need to describe the problem, request that the landlord fixes it, and state what you will do if the repair isn’t made. In your notice, you need to give the landlord a reasonable amount of time to make the repair.

Although a “reasonable amount of time” is hard to define, the deadline depends on how urgent the repair is. For example, a lack of heat in the middle of winter probably needs to be handled sooner than an infestation of cockroaches that’s limited to one room since bitter cold generally would be a bigger threat to health. You also need to keep a copy of the writing that you give to the landlord, and you should consider sending the letter to the landlord by certified mail, return receipt requested, in an attempt to get additional proof that you provided notice.

If the landlord lets a reasonable deadline pass without making a repair that involves habitability of your rental unit, then you can take the action that you stated in the writing to the landlord. As for what you might consider, there are some common options. ”Repair and deduct” often is a good choice. Find someone who is qualified make the necessary repair and pay for the reasonable cost of this work. Then, when you pay your rent, you deduct this cost from the rent and include documentation of the cost of the repair with this payment — provide the landlord with a copy and keep the original bill.

You might try for a court order requiring the landlord to make the repair, or you might decide to sue the landlord for rent that you paid for uninhabitable portion of your unit after the landlord knew of the breach of the warranty of habitability. Violations of the housing code that a county inspector found serious enough could give you the option of being protected by the Rent Withholding Act, but the remedies from the breach of the implied warranty usually are more comprehensive, making them more helpful.

Two final options merit mention. If a place is completely uninhabitable, then you could give notice to the landlord and move. This is risky because the landlord may sue you for breaking your lease. As mentioned before, this is why you need evidence that you should begin collecting when you have reason to believe at least some of the rental unit is uninhabitable for safety or health reasons. Photos and witnesses can help you make your case. Copies of all correspondence with the landlord about the problem should be saved as well. Proof that the landlord did not make the necessary repairs within a reasonable time also is important.

In addition, having estimates from a professional regarding the cost of the repairs can be useful as well. If you have to go to a hearing, you should ask whether the person who gave the estimate is willing to attend. She or he may not come for any number of reasons, but there is no harm in asking.

The last option to be discussed here is similar to the Rent Withholding Act’s escrow account for certain housing code violations but is a more flexible remedy for most tenants: rent abatement, in which at least a portion of the rent is placed into a separate financial account until the situation is resolved. You could attempt to estimate the portion of your residence that was not habitable and put this part of the monthly rent into the account while you take action to get the problem cleared up. You could place all rent into the account – if you do, do not touch these funds until the inevitable lawsuit is finished since you may have to pay at least some of this money to the landlord depending on the case’s outcome.

Just remember that the implied warranty of habitability always protects you in a residential lease situation, no matter what the landlord says or tries to do. Use it when you have a good reason to do so but also remember that it only applies to serious problems and not, for example, to a faucet that leaks a little. When it does apply, it can be a powerful tool providing powerful options against a bad landlord. However, you should be careful that a court is likely to see a habitability issue before you do anything. For this reason, you should consider consulting with an attorney before you act.

Habitability & Residential Leases, Pt 1

In Pennsylvania, whenever you rent a residence – whether it is an apartment, a house, or even a mobile home – you are protected by an implied warranty of habitability. The lease can be in writing or it can be a verbal agreement – the warranty will exist. Furthermore, your landlord cannot get you to waive this right in a residential lease because it automatically exists even if it is not expressed in the lease or a landlord expressly attempts to get rid of it. It protects you, as the tenant, from being forced to live in a place that is not safe, sanitary, and healthy. This is a powerful weapon against so-called slumlords, but, like all weapons, you must understand its purpose and how to use it for it to be useful.

The implied warranty of habitability was established by the Pennsylvania Supreme Court in the case of Pugh v. Hughes in 1978, and it is through court decisions that its meaning has developed. The basic idea is that a lease is a contract, which provides obligations for landlords and tenants. A tenant is supposed to pay rent, and this action requires the landlord to provide a safe and healthy place in which the tenant lives. If either party to the lease fails to live up to her or his obligation, then the other party cannot be forced to do what would be required here – these are considered to be mutual obligations because the failure of one to live up to the responsibility relieves the other of his or her obligation.

The idea sounds straightforward but becomes more complicated as you look at the details that come along with it. Tenants who do not pay their rent face eviction. Landlords who do not make repairs do not necessarily breach their obligation to provide a habitable residence for their tenants. Habitability goes to the ability to live in a place without some type of danger to the welfare of tenants due to the condition, which was under the landlord’s control. In other words, if you caused the problem that made the condition of your residence (or some part of it) a danger to safety or health, then you cannot blame the landlord for breaching the implied warranty.

Habitability refers to livability. Examples of conditions that can prevent a place from being livable include a lack of running water, the absence of heat in the winter, the presence of rats or cockroaches, and a leak in your ceiling. However, you must keep in mind that habitability is not an all-or-nothing thing. A ceiling leak that leaves the bedroom unusable does not necessarily make the rest of an apartment or house unlivable. As we will see later, this is a factor that can affect your options when you deal with the landlord and, potentially, with the legal system.

If at least part of your residence cannot be used due to the landlord’s lack of upkeep while you have remained current with your rent payments, you are in position to move forward with enforcing the implied warranty. At the same time, you must be sure not to move to soon in implementing one of the options that a breach of the warranty would provide – there are steps to take in order to protect yourself from an action by the landlord, such as eviction, while you act to protect your rights.

When you decide that the place that you rent has some area that is not habitable due to conditions like the examples listed earlier and that the landlord is at fault, you need to do what you can to protect yourself from the landlord blaming you. You want to have evidence that the problem exists, which becomes particularly important if you end up in the legal system by your choice or your landlord’s choice. Evidence can be in the form of photos, for example. Having witnesses who would be willing to describe what they have seen also can be beneficial. You could have an inspector from the county check for housing code violations. Whether or not you take actions like these before the next step really is up to you, but you definitely would work on these and other actions if you are headed toward the legal system. The step that you must take before you pursue any options is notifying the landlord so we will look at this prior to considering your remedies and other matters in the second part of this post.

Complications While Same-Sex Marriage Is Banned in Pennsylvania

[Note: On May 20, 2014, Judge John E. Jones III of the U.S. District Court for the Middle District of Pennsylvania actually issued the decision in Whitehead v. Wolf, in which he ruled as he anticipated the U.S. Supreme Court would rule. In short, based on the Due Process and Equal Protection Clauses of the U.S. Constitution, he determined that Pennsylvania could not justify its law banning same-sex marriages. He also entered an injunction against the enforcement of Pennsylvania’s law that was effective as of that date. The Commonwealth did not appeal so May 20, 2014 is the official date that Pennsylvania became part of the tidal wave of states across the nation that, willingly or not, recognized the legality of same-sex marriages.]

 

In Pennsylvania, same-sex marriage does not is against the law. Specifically, in the Domestic Relations Code, the legislature defines marriage as a “contract between one man and one woman” (Section 1102). Unlike its position on common-law marriage that was discussed in the previous post, it also has rejected the concept of comity, in which the laws of other states usually are recognized and respected. Instead, the legislature has invoked the “strong and longstanding public policy” exception to comity in Section 1704 of the Domestic Relations Code so that same-sex marriages, “even if valid where entered into,” are void here.

However, the U.S. Supreme Court’s decision in United   States v. Windsor, et. al. from June of this year may be the start of major changes throughout the country. Windsor dealt with the federal Defense of Marriage Act, in which Congress defined marriage as a union between a man and a woman. The case concerned two women who were married legally in Canada and then moved to New York, which recognized their marriage. The widowed spouse was the beneficiary in the Will, but the IRS forced her to pay the federal estate tax even though a spouse would have been exempt from this tax. With Ms. Windsor believing that she faced unequal treatment due to her gender, she filed the lawsuit that ended up in the Supreme Court. In what was a landmark decision to put it mildly, the Court found the federal definition of marriage unconstitutional, basing this decision mostly on due process grounds.

Marriage generally is a state-law issue. Windsor does not alter this but does affect federal rights and benefits of legally married spouses of the same gender. Changing the type of marriage found in the example in the previous post from a common-law marriage to a validly entered same-sex marriage, the couple who got married legally in Washington, D.C. can remain same-sex partners but no longer are considered spouses when they relocate in Pennsylvania.

While federal law usually supersedes state law, some issues – including marital and property rights – have been left to the states in most circumstances. This is where Windsor leaves many unanswered questions. The Social Security Administration made an effort to deal with this by issuing regulations after the Windsor decision. In the example, the SSA instructs the person who married in Washington, D.C. and then became a Pennsylvania resident to apply for benefits on the work record of her same-gender spouse when eligible because the marriage originally was valid.

Due to residency in Pennsylvania when she applies, the SSA currently will put a hold on the application, but the application does establish the protective filing date for benefits that may be paid later if the same-sex marriage that does not exist in Pennsylvania becomes valid again as it was when the couple resided in Washington, D.C. Meanwhile, had the surviving partner stayed in Washington, D.C., she could receive benefits now.

Bankruptcy law also relies on state law to define numerous rights, including property rights during marriage. Pennsylvania allows people filing for bankruptcy to choose to use federal or state exemptions for property. When a married couple owns their property as tenants by the entireties, this effectively prevents a spouse from transferring any ownership interest to a third party and generally puts the property out of reach for creditors of only one spouse. If most debt belongs to one spouse, the couple may decide that only that spouse will file, using the state exemptions to protect their joint property. However, a tenancy by the entireties can exist only when there is a valid marriage. Pennsylvania, by declaring same-sex marriage void, prohibits a same-sex couple from owning property in this way. Once again, there is different treatment at this point under federal law and under state law for individuals who, but for their genders, would be in the same situation.

Estates also are affected by marital status. Pennsylvania law gives rights to a surviving spouse preventing this spouse from being disinherited due to a deceased spouse’s Will. However, a person who entered into a same-sex marriage prior to settling in Pennsylvania becomes a virtual stranger regarding estate rights when the other person dies – the individual would not have the rights of a spouse. Instead, a Will would need to identify the person and specifically leave property to him or her (although the survivor essentially receives any part of the estate as a friend, not a spouse).

Also, Windsor provided that, regardless of gender, Ms. Windsor was a spouse and would be treated the same as other spouses under federal estate tax law, dropping her tax rate to zero percent as a result. Meanwhile, Pennsylvania’s inheritance-tax rate for a spouse is also zero percent, but, due to a same-sex marriage being void, an unrelated person of the same gender receiving property through a Will falls into the 15-percent tax bracket. In each of these situations, we see different treatment solely due to gender. Such issues will remain as long as same-sex marriage is rejected in Pennsylvania.

Next year could be a watershed year for Pennsylvania marriage law due to numerous court cases that involve possible recognition of same-sex marriages. A change could come soon after June when Whitewood v. Wolf, which directly attacks Pennsylvania’s statutory ban on same-sex marriage, is scheduled to be heard in a federal court in Pennsylvania. The ban on same-sex marriage and its resulting complications easily could be history in Pennsylvania before 2014 ends. Time – and, most likely, the courts – will tell.