Wills, Trusts & Estates Prof Blog

Tokyo Prepares to Introduce Same-Sex Partnerships Next Year

According to the Governor of Japan's Capital, Yuriko Koike, Tokyo plans to introduce same-sex partnerships in April. The introduction of same-sex partnerships will be a "significant shift for the country's biggest population center." 

Koike stated:

 [f]rom the point of view of advancing understanding of sexual diversity, as well as reducing the problems faced by those involved, we will lay out basic principles for introducing a same-sex partnership system in the next fiscal year. . .

According to opinion surveys, the public is largely in favor of equal marriage rights, "but the long-ruling and conservative Liberal Democratic Party has shown little enthusiasm for change." As of now, Japan is the only Group of Seven country not to recognize same-sex marriage.

 See Isabel Reynolds, Tokyo Prepares to Introduce Same-Sex Partnerships Next Year, Bloomberg, December 7, 2021. 

Special thanks to David S. Luber (Florida Probate Attorney) for bringing this article to my attention.

TAX PROPOSALS IN THE NEW “BUILD BACK BETTER” FRAMEWORK

"The White House released a new framework for the build back better plan, followed by a preliminary draft of the Bill from the house rules committee." 

Included in the proposal is a spending and tax plan. The specifics of the plan are complicated and involve "rapidly evolving, Congressional dynamics." 

The House Rules Committee text did not include provisions for tax changes like lowering of gift and estate tax exemption amounts; limitations on grantor trusts; increased corporate, income and capital gain tax rates; and provisions related to IRAs and Roth IRAs. Also notably left out was the "Billionaire Income Tax." 

Draft provisions that were included were: 

• A 15% minimum tax on corporations with more than $1 billion in profits, 1% surcharge on corporate stock buybacks for public companies, and 15% global minimum tax
• An income surtax applying a 5% percent rate on modified adjusted gross income (AGI) over $10 million, and an additional 3% on modified AGI above $25 million. The income surtax thresholds are lower for trusts, applying a 5% surtax on modified AGI over $200,000, and an additional 3% surtax on modified AGI over $500,000
• An expansion of the 3.8% net investment income (NII) tax to business profits for material participants making over $400,000, joint filers over $500,000 and all trust and estates (regardless of income levels)
• Limitation of the qualified small business stock exclusion to 50% for most sales of QSBS after September 13, 2021
• Limitations on excess business losses of noncorporate taxpayers, including a no-carryover of disallowed losses

See TAX PROPOSALS IN THE NEW “BUILD BACK BETTER” FRAMEWORK, Wealth: Northern Trust, October 28, 2021. 

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

Future Returns: How Proposed Tax Changes Could Affect Art Collectors

The U.S. $3.5 trillion budget reconciliation bill before the U.S. Congress could greatly impact wealthy individuals who collect art. That being said, art collectors should keep their eye on the bill as changes within the legislation "could have big consequences for how they manage their collections." 

According to Monica Heslington, head of the art and collectibles advisory team at Goldman Sachs Family Office, those who own art and collectibles do not typically view their treasures in the same way as investments in stocks and bonds, but want to "display their paintings, and keep driving their sports cars. . ." Heslington added that "it's a lot easier to get clients to plan with financial assets than it is with art and items that are important to them. . ." 

Currently, sales of art and collectibles are subject to a 28% long-term federal capital gains tax rate.

Typically, the supply of art on the secondary market is driven by death, divorce, and bankruptcy, but people also sell art when they want to upgrade their collection or when their taste in art changes. 

Despite whatever reasons there are to buy, sell, or collect art, it is important for wealthy collectors to pay close attention to possible changes in legislation, as failing to do so could result in dire consequences. 

See Abby Schultz, Future Returns: How Proposed Tax Changes Could Affect Art Collectors, Barrons, October 5, 2021. 

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

Article: How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning

Beckett Cantley and Geoffrey Dietrich recently published an article entitled, How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

On April 7, 2020 the U.S. Tax Court ruled in Estate of Moore v. Commissioner, T.C. Memo. 2020-40, that certain deathbed transfers should be includible in the decedent’s estate for United States Federal Estate Tax (“estate tax”) purposes. The court applied Internal Revenue Code (“I.R.C.”) § 2036 to the transfers due to the decedent’s continued interests in the transferred property. The Tax Court stated that I.R.C. § 2036 creates “a general rule that brings back all property that a decedent transfers before he dies, subject to two exceptions.” The first exception is for bona fide sales for full and adequate consideration. The second exception is for “any property that [the decedent] transferred in which he did not keep a right to possession, enjoyment, or rights to the issue of the transferred property.” The Tax Court stated that the first exception depends on the transferor’s motivations, and that the decedent’s actions made it clear there was no bona fide sale. As a result, the Tax Court determined that I.R.C. § 2036(a)(1) applied to the transfer.

Estate of Moore is the latest in a line of cases in which taxpayers made deathbed transfers close to the date of death and the IRS successfully argued that the transferred property is includible in the decedent’s gross estate. In Estate of Bongard v. Commissioner, 124 T.C. 95 (2005), the Tax Court created a three-part test to determine whether I.R.C. § 2036 pulls property back into a decedent’s estate. In Estate of Strangi v. Commissioner, T.C. Memo. 2003-145, aff’d 417 F.3d 468 (5th Cir. 2005), the Tax Court provided additional guidance for how the court interprets I.R.C. § 2036(a)(1). In Estate of Nancy H. Powell v. Commissioner, 148 T.C. No. 18 (2017), the court builds on the rationale established by Strangi, but ultimately invokes I.R.C. § 2036(a)(2) to include the transferred assets in decedent’s gross estate. This article: (1) provides an overview of deathbed transfers case law; (2) describes typical such deathbed transfers; (3) outlines the I.R.C. § 2036 statute; (4) discusses the main seminal cases in the area of deathbed transfers, including Estate of Bongard, Estate of Strangi, Estate of Powell, and Estate of Moore; (5) synthesizes the case law on I.R.C. § 2036 and analyzers policy considerations regarding such law; and (6) concludes with a summary of the article’s findings.

Final regulations establish a user fee for estate tax closing letters

The IRS issued final regulations instituting a user fee of $67 for the Service to issue an estate tax closing letter. 

Other than the adoption of the final regulations, there were no significant changes to the proposed regulations issued in late December 2020.

An estate tax closing letter informs its authorized recipient of the IRS's acceptance of the estate tax return (generally, Form 706, United States Estate (and Generation-Skipping Transfer Tax Return) and provides some return information, such as the amounts of the net estate tax, any state death tax credit or deduction, and any generation-skipping transfer tax for which the estate is liable. 

The new user fee will apply to "requests for estate tax closing letters received by the IRS on or after the date 30 days after publication of the final regulations in the Federal Register. 

(Publication occurred on September 28, 2021). 

See Paul Bonner, Final regulations establish a user fee for estate tax closing letters, Journal of Accountancy, September 27, 2021. 

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

Democrats may rein in big estates without reforming the estate tax

Democrats may limit some strategies used by wealthy Americans to reduce or avoid estate taxes. The list of potential tax reforms connected to the Democrats' $3.5 trillion budget plan include grantor-retained annuity trusts, intentionally defective grantor trusts and non-economic valuation discounts. 

The targeted strategies are often used by multimillionaires and billionaires to "gift appreciated assets to heirs tax-free while reducing the size of their taxable estate. . ." 

In addition to disallowing certain complex trust-planning techniques, Congressional Democrats may also ask the Treasury Department to update regulations to "prevent the abuse of non-economic valuation discounts."

According to Robert Lord, counsel for progressive group Americans for Tax Fairness, "[b]asically you've got this basket of loopholes that collectively can be used to defeat the estate tax at really any level, even billionaires." 

"Interestingly, Democrats don't seem to be weighing reforms to the estate tax itself, such as a higher tax rate or a reduced asset threshold that would subject more estates to federal levies." 

The Democrats' proposed estate-tax reforms "are part of Democrats' broader theme of raising taxes on the wealthy to help fund climate, paid leave, childcare and education measures. . ." 

See Greg Iacurci, Democrats may rein in big estates without reforming the estate tax, CNBC Personal Finance, September 10, 2021. 

Special thanks to Deborah Matthews (Virginia Estate Planning Attorney) for bringing this article to my attention.

Article: Summary of Changes Made By the 2021 Texas Legislature

Gerry W. Beyer recently published an article entitled, Summary of Changes Made By the 2021 Texas Legislature, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

This article reviews the highlights of the legislation enacted by the 2021 Texas Legislature relating to the Texas law of intestacy, wills, estate administration, trusts, guardianship, and other estate planning matters.

Statutory Book Released: 2021 Texas Estates & Trust Codes with Commentary

Gerry W. Beyer recently posted his book, 2021 Texas Estates & Trust Codes with Commentary, on the Wills, Trusts, & Estates Law eJournal. Provided below is the abstract of his work:

This document contains the Texas Estates Code and the Texas Trusts Code (and related Property Code provisions) showing all changes made by the Regular Session of the 2021 Texas Legislature. The changes, most of which take effect on September 1, 2021, are shown in red-lined format for easy comparison of the prior and new versions of the statutes. Also included are charts converting Probate Code to Estates Code sections and Estates Code to Probate Code sections.

I have included commentary entitled Statutes in Context to many sections. These annotations provide background information, explanations, and citations to key cases which should assist you in identifying the significance of the statutes and how they operate.

Illinois: Electronic Wills and Remote Witnesses Act

The governor of Illinois has signed into law the "Electronic Wills and Remote Witnesses Act," making it the tenth American state to put into effect legislation for e-wills. The act takes effect immediately (July 26, 2021).  The Illinois act is non-uniform -- it is not based on the Uniform Electronic Wills Act of 2019.

Below is the link to the Act:

Public Act 0167 102nd General Assembly 

Special thanks to Adam J. Hirsch (Professor of Law at the University of San Diego School of Law) for bringing this Act to my attention.

Electronic-Will Legislation -- Good, Bad, or Ugly?

Prof. Adam J. Hirsch (University of San Diego) has recently posted on SSRN an undated version of his extensive article about e-will legislation entitled Models of Electronic-Will Legislation. Here is the abstract of the article:

This Article examines alternative ways lawmakers could structure legislation validating electronic wills. The Article identifies four essential models, each of which is currently reflected in acts or drafts of acts found either in the United States or abroad. These are: (1) acts validating electronic wills that meet formal requirements, (2) acts giving effect only to specialized variants of electronic wills (or none at all), (3) acts allowing electronic wills only when made under emergency conditions, and (4) acts allowing electronic records intended as wills on a case-by-case basis, without establishing formalities for their validation. In the course of the analysis, the Article performs the first-ever empirical survey of popular assumptions concerning the revocation of electronic wills. The Article ultimately concludes that, given the novelty of electronic wills, we are best off if states experiment with alternative legislative models until lawmakers have enough evidence to assess their relative merits. For this reason, the Uniform Electronic Wills Act of 2019 is premature.