Tax and Trusts & Estates

Estate Planning – When the Only Certainty is Unpredictability

By Allan B. Cutrow and Jeffrey K. Eisen

 

Donald Trump is now the President, and both chambers of Congress are under Republican control. Thus, we appear to be poised for potentially substantial changes in the estate tax, gift tax, generation-skipping transfer tax, and income tax laws. However, as with all other aspects of political life in America today, it is impossible to predict at this time what ultimate changes will materialize. The only clear thing is the lack of clarity.

  1. Is the Estate Tax History? First, there is the perpetual Republican promise, supported by the President, of “repealing” the estate tax. Last time the estate tax was “repealed” (in 2001), it really meant eight years of gradually increased exemptions and gradually decreased rates, followed by one year of repeal (2010), followed by the return of the estate tax with even greater exemptions and lower rates, which is where we are today. Will this happen again? Will the estate tax just disappear retroactive to 1/1/17 or perhaps on 1/1/18? Will deficit hawks decide that even the relatively tiny revenue generated by the estate tax is worth keeping to avoid a political fight with Democrats? (more…)

Understanding UPMIFA: Important Endowment Concepts

By David Wheeler Newman

The Uniform Prudent Management of Institutional Funds Act (“UPMIFA” or “the Act”) was adopted in 2006 by the National Conference of Commissioners on Uniform State Laws, as the successor to the Uniform Management of Institutional Funds Act (UMIFA), and has (at 1/1/2017) been enacted in every state except Pennsylvania. UPMIFA provides guidance and authority to charitable organizations concerning the management and investment of charitable funds and for endowment spending.

UPMIFA contains rules and standards for their application across three broad areas of importance to charitable organizations, members of their fiduciary boards, and their advisers, if those organizations hold restricted funds including endowment. This post focuses on endowment, and future posts will address UPMIFA rules for the delegation of management and investment functions, and for the release or modification of restrictions contained in gift instruments. (more…)

iWill or iWon’t

By Allan Cutrow and Emily Evitt

digital safety concept padlock in electronic environment

Photo credit: iStock.com/the-lightwriter

Ever wondered what will happen to your Facebook page when you die? The California Legislature has recently weighed in. Effective as of January 1, 2017, California will have its first law to specifically address the handling of your “digital assets” after your death. The Revised Fiduciary Access to Digital Assets Act will determine who, if anyone, can access your digital assets, such as social media accounts, online gaming accounts and music accounts after your death. Under the new law, the custodian of digital assets – such as Facebook, Google, or Apple – must provide a fiduciary access to a deceased individual’s digital assets as the decedent previously directed. The Act sets up a three-tiered approach, which works as follows: (more…)

Proposed IRS Regulations Could End Most Valuation Discounts for Family Entities

By Allan Cutrow, Jeffrey Eisen and S. Eva Wolf

On August 2, 2016, the Treasury Department issued proposed regulations under Section 2704 of the Internal Revenue Code. The proposed regulations, if adopted in their current form, essentially will eliminate all minority discounts or lack of control discounts and lack of marketability discounts for transfers between family members of interests in family-controlled businesses.

The proposed regulations accomplish this result in complex ways. But here are some points to consider as you decide whether to act quickly.

  1. The regulations are “proposed.” This means that they are not currently in effect. The Internal Revenue Service has scheduled a public hearing on the regulations in Washington, DC on December 1, 2016. They take effect when the IRS announces that they are “final.” Thus, these regulations could take effect shortly after the hearing, sometime in 2017, years from now, or never (in theory). The IRS may change the regulations in meaningful ways before adopting them as final. (more…)

Important New Guidance on Charitable Remainder Annuity Trusts

 

By David Wheeler Newman

The Internal Revenue Service has issued important new guidance that can allow a charitable remainder annuity trust (CRAT) to qualify under Internal Revenue Code section 664 in a low-interest environment.

Background

Section 664 confers substantial tax benefits on charitable remainder trusts that meet its requirements. These are irrevocable trusts that during their term distribute a formula amount to one or more non-charitable beneficiaries, with the remainder distributed to charity upon termination of the trusts. There are two allowable formulas. A charitable remainder unitrust (CRUT) distributes a fixed percentage of the value of trust assets determined every year. There are some allowable variations for CRUT distributions, but in general this means that distributions from a CRUT can go up or down from year to year, depending on increases or decreases in the value of trust assets. While CRUTs are by far the more popular of the two main varieties, some clients and donors prefer the CRAT, which distributes the same amount every year during its term, which is fixed at the time the trust is created and which must be at least 5% of the value of assets contributed to the trust. (more…)

4 Things Beneficiaries Who Receive IRS Form 8971’s Schedule A Must Know

By Jacey L. Hayes

When someone inherits assets, he or she is supposed to have a tax basis in the inherited asset for income tax purposes equal to the “fair market value” of the inherited asset at the date of death. The IRS is concerned that it is losing billions of dollars due to improper basis reporting for inherited assets: that is, the executor reports the assets on the estate tax return at one value, and then when those same assets are later sold, exchanged, or transferred by the beneficiary, the beneficiary reports the basis at a higher value. To tackle this concern, all estates which file an estate tax return after July 31, 2015, also must now file, within 30 days after filing the estate tax return, new IRS Form 8971, and provide a Schedule A to each beneficiary. A beneficiary’s Schedule A must also be given to the beneficiary within the same time frame. (Note that for all estate tax returns filed between August 1, 2015 and May 31, 2016, the due date of Form 8971 was postponed to June 30, 2016, leading to a flood of recent filings.) (more…)

IRS Confirms – No More Phone Calls (At Least Not Initially)

By Jeffrey D. Davine

It has been somewhat of an epidemic. Lots of taxpayers have received calls from persons who claim to be from the IRS and who assert that the recipient of the call has an outstanding federal tax liability. The caller then threatens some kind of draconian penalty (e.g., the police will be immediately dispatched to arrest the recipient of the call) unless immediate payment is made by wire transfer, debit card, or some other mechanism whereby the caller can extort some quick money.  (more…)

Valuation Rule for Early Termination of Net-Income Charitable Remainder Unitrusts

By David Wheeler Newman

Under Internal Revenue Code § 664, a qualified charitable remainder unitrust each year during its term distributes to a non-charitable beneficiary a fixed percentage (5% or greater) of the value of trust assets, determined annually (the unitrust amount).  Assets remaining in the CRUT at the end of its term are distributed to charity.  Section 664(d) provides that a qualified CRUT may limit distributions to the non-charitable beneficiary to the lesser of the unitrust amount or trust income under fiduciary accounting principles (a net-income CRUT, or NICRUT), and may pay the non-charitable beneficiary any trust income in excess of the unitrust amount to the extent that aggregate distributions in prior years were less than the aggregate unitrust amounts as a result of the net-income limitation (a net-income with make-up CRUT, or NIMCRUT). (more…)

Four Lessons Learned from Prince’s Estate (So Far)

By Jeffrey K. Eisen

Several of the events surrounding the initial administration of Prince’s estate provide lessons applicable to all estate plans, not just celebrity estate plans.

  1. If You Don’t Have an Estate Plan, the State Will Write One For You. Prince died without a Will.  Because he was not married at the time of his death and he had no surviving parents, children or grandchildren, his sister, and his five half-brothers and half-sisters each will inherit one-sixth of his estate.  Two other half-siblings died before Prince, apparently leaving no children of their own; otherwise, they would be entitled to part of the estate as well.

(more…)

Higher Learning: A Potentially Expensive Lesson About 529 Plans

By Karl de Costa

A “529 qualified tuition plan” is an education savings plan designed to encourage and help families set aside funds for future college costs.  It’s named after Section 529 of the Internal Revenue Code, which created this type of plan in 1996.

Americans have an estimated $248 billion currently invested in 529 plans.  And it’s easy to understand why.  Generally speaking, 529 plans offer an impressive array of income tax and estate tax breaks, plus other benefits.

  • Earnings on funds within the plan grow federal and California tax-free as long as the money is taken out to pay for qualified education-related expenses of the designated beneficiary, such as tuition, fees, books, computers, and room and board. (more…)