Wills, Trusts & Estates Prof Blog

Year-end planning just got a whole lot more complicated

As Election Day approached, talk surrounding estate planning grew. Presidential candidate Joe Biden announced his tax plan proposal, which many thought may come to fruition if the Democratic Party won the Presidency and took over a majority of the Senate. The proposed tax plan would significantly reduce estate and gift tax exemptions. 

Although the election has come and gone, there is not yet much clarity surrounding the future of estate planning. It appears more likely than not that Joe Biden will be the next President, there is still a lot of discussion. Further, the determination of which party will control the Senate will not be made until the two runoff elections in Georgia are held in January.

Therefore, we will not know who will control the Presidency, House, and Senate until after 2020 has ended. Due to the uncertainty, estate planning has been and will continue to be difficult. 

It may be in your client's best interest to take advantage of the current tax exemptions while they are available. Whether this is what is best for your client will depend on their current financial situation. It may be the case that the potential reduced exemptions will not affect them.

However, "The harder situation is for those individuals who might not have a federal tax due at death if the exemptions stay where they are, but would owe tax if they were to be cut by 50% or more. Those of us who lived through 2012 have already seen this movie. In these cases, there may be ways to structure the gift to give a family more time to make the decision."

It is important to discuss the implications of the new exemption rates and the potential impact they could have on your client, whether or not the new tax plan is a sure thing.

See Scott Bieber, Year-end planning just got a whole lot more complicated, Thompson Coburn LLP, November 13, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

It’s a tough year for year-end tax planning

With the new year approaching and the likelihood of a new president, advisers have their work cut out for them. Not knowing who will control the senate, leaves helping clients plan difficult. 

If the Democrats control the Senate, it is more likely that tax plans will change dramatically as Presidential candidate Joe Biden's proposal is very different from what President Donald Trump implemented. Control of the Senate will likely be determined on the Georgia Senate seats. 

Although possible, the odds of the Democrats winning both Georgia Senate seats is only 25%. Thus, it is not very likely. 

Even though Democratic control of the Senate is unlikely, the possibility should be taken into consideration. Under Biden's proposal, capital gain tax, charitable giving, and estate tax would be affected. 

Biden has proposed raising the capital gain rate form 20% to 39.6% for taxpayers with income over $1 million. So it may be more beneficial for individuals to sell before the end of the year. 

In regard to charitable donations, Biden's proposal caps itemized deductions at a 28% tax benefit for anyone making more than $400,000, compared to the current rate of 37%. 

In regard to estate tax, the Biden plan would reduce the gift and estate tax exemption from the current $11.58 million to $3.5 million. 

If your clients are making plans and their plans include one of these three categories, it may be safe for them to go ahead and make their moves before 2021. 

See Dave Strausfeld, J.D., It’s a tough year for year-end tax planning, Journal of Accountancy, November 16, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Wisconsin Hospitalized And Quarantined Electors Can Use Agent To Help Vote

Wisconsin has enacted the Hospitalized Electors Process to allow those who are hospitalized or quarantined to vote using an agent. This move came after a surge in Covid-19 cases in this state that will put thousands of electors either hospitalized or quarantined. 

Under the Hospitalized Electors Process, the voter is the one to designate the agent. If the voter is not registered to vote, the agent can register for them at the same time that the agent applies for the electors ballot. 

The agent only needs to bring the application for the ballot and a form of photo identification. The ballot will also need to be cast in the presence of a witness.

This Process will allow more people to vote while also maintaining the safeguards put in place to stifle the spread of Covid 19. 

See Wisconsin Hospitalized And Quarantined Electors Can Use Agent To Help Vote, Probate Stars, October 30, 2020. 

Federal Estate Tax Exemption Is Set to Expire – Are You Prepared?

As the presidential election draws closer, so does the threat to the historically high estate tax exemptions. Due to the Tax Cuts and Jobs Act (TCJA) the lifetime gift, estate, and generation-skipping tax exemptions doubled the exemption, raising it to $11.58 million (adjusted for inflation) in 2020. Which is the highest it has ever been. 

Unfortunately, this high exemption will not last forever, and could be gone sooner rather than later. Therefore, it may be a good idea for you to take advantage of the exemption, or encourage clients to do so. 

As of now, the exemption rates are not set to sunset until the beginning of 2026, but the exemptions could sunset much sooner, especially if Joe Biden is elected. 

A few things you could do in preparation for the estate tax exemption sunset include: 

• Consider Gifting Away Assets to Reduce Estate Taxes While You Still Can 
• Take Advantage of Lower Valuations and Low Interest Rates
• Consider Acting Now to Avoid the Last-Minute Rush 

See Chuck Cavanaugh, Federal Estate Tax Exemption Is Set to Expire – Are You Prepared?, Kiplinger, October 14, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Final regs. outline trust and estate expenses still deductible under TCJA

The IRS issued final regulations "clarifying that certain expenses incurred by, and certain excess deductions upon the termination of, an estate or non grantor trust are not affected by the suspension of miscellaneous itemized deductions for tax years 2018 through 2025." 

Section 67(g), known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, disallows itemized deductions for any tax year beginning after December 31, 2017, and before January 1, 2026. Prior to the TCJA, itemized deductions were allowed so long as their aggregate amount exceeded 2% of adjusted gross income. 

Section 67(e) discusses the computation of the adjusted gross income in regard to an estate or trust and exceptions that may arise in the computations. 

The IRS and Treasury recognized that excess deductions may consist of "(1) deductions allowable in arriving at AGI; (2) non-miscellaneous itemized deductions; and (3) miscellaneous itemized deductions."

Section 67(g) only suspends the third type of deduction. "Consequently, the proposed and final regulations provide rules for trustees to determine for a terminating estate or trust the character and amount of each deduction type and, therefore, their respective allocations to, and applicable limitations upon, the succeeding beneficiaries.:

See Paul Bonner, Final regs. outline trust and estate expenses still deductible under TCJA, The Tax Adviser, September 22, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Video wills: Leaving a legacy moves into 21st century

The COVID-19 pandemic has pushed new tech adaptations in regard to wills. 

Since the Wills Act of 1837, making a will has required the physical presence of at least two witnesses, at least in England and Wales.

However, the Ministry of Justice now allows video technology to be used to witness the signing of wills. The concession has been backdated to January 31, 2020, which will cover all wills that were witnessed by video and will remain current until January 2022.

The Ministry of Justice has stated that they prefer that this method is only used as a last resort. For example, when the testator cannot meet people outside of their household. 

The pandemic has pushed many people to change their priorities, which has in turn pushed people to make wills. Will-writing organizations and law firms have seen a vast increase in the amount of wills. 

Farewill, which is the UK's largest will-writing organization saw a "three-fold" increase between May and July compared to the same period last year. 

Lorraine Robinson, head of legal at farewill, stated that she is on board with the new technological advances, but that people should be "vigilant" due to the newness and uncertainty of the new law. 

Many attorneys are urging those to only use this modern approach in the "most dire emergencies." 

See Lindsay Cook, Video wills: Leaving a legacy moves into 21st century, Financial Times (U.K.), September 3, 2020. 

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Utah becomes first state to enact the Uniform Electronic Wills Act

The 2020 Sixth Special Session of the Utah Legislature passed the Uniform Electronic Wills Act. The bill was subsequently signed by Governor Gary Herbert on August 31, 2020 and took effect immediately. Notably, the enacted version allows for remote witnessing.

Utah is thus the first and only state to enact the UEWA joining four other states which authorize electronic wills (Arizona, Florida, Indiana, and Nevada; DC temporarily authorizes them during COVID).

Special thanks to Adam J. Hirsch (Professor of Law, University of San Diego School of Law) for being the first of many to bring this landmark development to my attention.

House OKs on 2nd reading bill extending estate tax amnesty by 2 more years

"The House of Representatives approved on second reading a bill that would extend the estate tax amnesty program by another two years."

The House Bill, No.7068, will amend Republic Act No. 11213 (Tax Amnesty Act) extending the estate tax amnesty from two years to four years. 

The Bureau of Internal Revenue defines estate tax as a "tax on the right of the deceased person to transmit his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made law as equivalent to testamentary disposition." 

On Feb. 14, 2019, President Rodrigo Duterte signed RA 11213 into law and it took effect on May 31 of 2019. 

"The tax amnesty covers the estate of decedents who died on or before Dec. 31, 2017, with or without prior assessments." 

"Rep. Joey Salceda of Albay's 2nd District and chairman of the House Ways and Means Committee, pointed out that only less than 24,000 taxpayers availed of the amnesty since the original deadline for the availment and payment has been extended four times, with the new deadline set on Dec. 31, 2020."

Salceda also mentioned that the availment of amnesty only resulted in earnings of $1.362 billion out of the projected $6 billion plus. 

Therefore, the two year extension is necessary in order for the Act to be effective. 

See House OKs on 2nd reading bill extending estate tax amnesty by 2 more years, CNN Phillipines, September 9, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

The 2020 Election in Maryland: It's Not About Politics

During Autumn of 2020, Maryland's new elective share law will take effect. "No longer limited to a fractional share of the net probate estate, a surviving spouse who decides to reject what was given to him under the decedent's existing estate plan will then receive his elective share out of the deceased spouse's augmented estate."

Maryland's existing share law is based on a statute that was originally enacted in 1798. That statute states:

“Instead of property left to the surviving spouse by will, the surviving spouse may elect to take: (1) A one-third share of the net estate if there is also a surviving issue; or (2) A one-half share of the net estate if there is no surviving issue.”

Any rights the spouse has in non-probate assets will be unaffected by the spouse's exercise of her elective share rights. The fact that non-probate assets and other inter vivos transfers will not be affected by the election is an important upside. 

Under the new law, "a surviving spouse who exercises his right of election will receive a share of the deceased spouse’s estate from a mix of assets that includes probate assets, property outside of the probate estate, and certain other lifetime and testamentary transfers."

"The new law establishes the following ordering rule for the satisfaction of the elective share, to determine the priority of payment from assets included in the estate and which are not part of the spousal benefits: (i) from the probate estate; (ii) from the revocable trust; (iii) if the decedent had more than one revocable trust, by apportionment among the trusts in proportion to the value of each revocable trust; and (iv) by the recipients of any other portions of the estate, prorated among the recipients in proportion to the value of the assets received by each recipient. The decedent’s will or trust instrument may override the ordering rule, or the parties who pay the elective share may enter into an agreement subject to court approval for payment of the elective share."

See Linda Kotis, Andrea Dykes, & Carolyn Rogers, The 2020 Election in Maryland: It's Not About Politics, American Bar Association: Probate & Property, July/August 2020. 

Remote Notarization and Witnessing Extended in New York

On July 6, 2020, Governor Cuomo (N.Y.) signed Executive Order 202.48, which extends the option for individuals to use remote procedures to execute estate planning documents in order to practice social distancing. Individuals will be able to execute documents through video conferencing through August 5th, unless further extended. 

Executive Order 202.7 allows individuals to have documents notarized virtually through video conferencing, while Executive Order 202.14 allowed for the use of video conferencing for witnessing. 

Although the Executive Orders allow for individuals to execute documents from a distance, the formality itself is no more relaxed than before. Therefore, it is important to be informed of the necessary requirements to properly executed documents through these procedures. 

See, Remote Notarization and Witnessing Extended in New York, Hodgson Russ L.L.P., Jul 21, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.