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Friday, April 29, 2016

News and Updates

It's been a busy few weeks, and as I sit here in my desk at 7 o'clock on a Friday, I just wanted to take a moment to make a few announcements.

First, effective today, Franklyn Z. Aronson, Esq., who has been Of Counsel to our firm, is retiring. Frank, thank you for all your advice these last few years and I wish you all the best in retirement... although I know we will see you around the office quite a bit!

Second, I wish to welcome Jessica J. Sauer, Esq. as an associate to our firm.  She will be joining us in the estate planning department and also assisting on guardianship matters.

Third, Pierson W. Backes, Esq. will be officially joining our firm as Of Counsel in the estate litigation department.  As many of you know, Pierce and I have worked closely together for years, mostly with me working as Of Counsel to his firm with respect to estate planning matters.  Lately, we have had more and more contested probate matters and trust litigation cases, and I am confident he will be able to assist our clients in these matters.

Fourth, I wish to thank my wife, Asako, for all of her hard work over the past few months in getting our new website, www.Wills-Trusts.net, up and running.  Please let me know what you think and if there are any suggestions you might have.

Monday, April 4, 2016

New Jersey Enacts Uniform Trust Code into Law

While this may not sound like big news, it is actually very exciting that New Jersey has finally enacted the Uniform Trust Code (UTC) into law.  The new law will go into effect on July 17, 2016.  When it does, New Jersey will join Pennsylvania, Florida and a majority of other states in adopting most of the provisions of the UTC.

What does this mean for you though?  For the most part, if you have have a trust and have ever said to yourself, "The trustees and beneficiaries all agree this is outdated and certain provisions should be modified", this law is for you!

The best part about the UTC is that it makes it easier to modify a trust without going to court to have it amended.  There are obviously certain limitations, but simple things are much easier including:
1)  like moving the trust from one jurisdiction to another;
2)  interpreting confusing terms of a trust;
3)  approving the resignation of a trustee;
4)  appointing a new trustee
5)  granting or removing a trustee power; 
6)  determining trustee compensation; 
7)  approving an accounting; 
8)  terminating a trust (if not inconsistent with terms of trust); 
9)  reforming mistakes; and
10)  allowing a parent to bind minor children and unborn children if there is no conflict of interest.

Some other interesting provisions in the new law include:
1)  Even if a trust says that a beneficiary is not to be told about a trust, the Trustee must respond to the requests of certain beneficiaries and give them a copy of the trust document and other information related to the administration of the trust.
2)  It clarifies some of the terms of trusts for animals/pets.
3)  It clarifies the time-frame for a person to contest the validity of a trust.
4)  It clarifies to what extent and how a trustee can rely on financial advisers.

The new law, while effective starting on July 17, 2016, will apply to all trusts, whenever created.  This does not necessarily mean if you have a trust that you need to amend it.  However, some people may want to amend the trusts as soon as possible if:
1)  You really want to restrict your heirs from having the ability to modify the trust; or
2)  You have a split interest charitable trust based in New Jersey (although it is unclear if the charity or the Attorney General of NJ will consent to this); or
3)  You know that the trust document has a mistake and you'd rather try to convince the people alive now to fix it than wait for the next generation.

Tuesday, March 29, 2016

Requirement of Executors to Report Basis of Assets When Administering an Estate - FollowUp

The IRS has released new regulations that have extended the due date for filing Form 8971 to March 31, 2016.  Executors and administrators of estates that are required to file a federal Form 706 Estate Tax Return are now also required to file Form 8971 and report the basis of the assets included in the estate to the beneficiaries of the estate.

As discussed in my post on February 7, 2016, the IRS is trying to consistently tax assets for estate tax and capital gains tax purposes.  Requiring executors to supply this information to beneficiaries and the government is their attempt to better track this information.  

Additionally, there was an open question as to whether all estates had to file the Form 8971 or just those that were over the federal estate tax exemption threshold.  According to this publication from Bessemer Trust, the IRS has issued regulations that state that if you are filing a form 706 merely to elect portability, you do not also need to file form 8971. 

Thanks again to Abby Moller for bringing this to my attention 

Sunday, February 7, 2016

IRS Releases Form 8971 - Executors Now Required to Report Basis of Assets When Administering Estate

For many years the IRS and beneficiaries of estates had a problem figuring out how much gain should be imposed on an inherited asset because the beneficiaries did not know the basis.  The IRS did not like the fact that frequently the value reported by an Executor was not the value reported by a beneficiary when an inherited asset was sold.   
Accordingly, the government enacted Internal Revenue Code Section 1014(f) and is requiring that any estate which is required to file an estate tax return (Form 706) also file Form 8971 (including all attached Schedule(s) A), retro-active to decedents who died after July 2015. The executor must also provide Schedule A to each beneficiary receiving assets from the estate. Both requirements must be met within 30 days after the date on which Form 706 is required to be filed with the IRS, or the date that is 30 days after the date Form 706 is filed with the IRS, whichever is earlier. 
Notice 2015-57 has made February 29, 2016 the due date for all Forms 8971 (including all attached Schedule(s) A) required to be filed with the IRS after July 31, 2015, and before February 29, 2016. Penalties may be imposed for failure to comply with this new filing requirement.
If an estate is not required to file a Form 706, then there is no corresponding requirement to file a Form 8971.  However, it is probably good practice for the executor to advise the beneficiaries of the value of assets as determined on a decedent's date of death so that everyone knows what the new basis is in the inherited assets. 

Instructions for Form 8971 can be found here: https://www.irs.gov/instructions/i8971/ch01.html

I note that there are a number of important items that are not clear:
1)  Does Form 8971 need to be filed when an estate files Form 706 for purposes of porting the DSUE of a deceased spouse. Accordingly, until we receive clarification, it would probably be best practice to do so.

2) Which beneficiaries should actually receive a copy of the Form?  For example, it would make sense to give the form to the beneficiaries of a trust.  It would make more sense to give it to the trustee of a trust.

3) Form 8971 asks "Did this asset increase the estate tax liability?"  I am a little unclear on what this actually means.  I would think that you should pretty much always answer yes to this question.  However, I have heard one commentator state that this really muddies the waters because theoretically assets that qualify for the Marital Deduction, Charitable Deduction, or other similar deductions do not increase the estate tax liability.  Nevertheless, I do not believe the IRS now saying we don't get a step up in basis for those assets.  I believe this is primarily to identify non-qualified preferred stock options and potentially negative value assets.  After all, it would be shocking for the IRS to say that assets passing to a spouse do not receive a step up under the normal 1014 basis rules.  If I here otherwise, I will be sure to let you know... and join in the revolt against the politicians!

4) What about situations where a beneficiary is actually allowed to have a basis higher than a decedent's date of death value?  Examples of this potentially include:  situations where a beneficiary gifted away an asset within one (1) year of death, where a decedent dies owning an interest in a partnership or limited liability company subject to a debt, or real estate subject to a non-recourse debt. 

The American Bar Association Taxation Section has submitted a letter to the IRS requesting clarification of many of these items.  I hope we will all hear a response soon.

Updated 3/23/16 - Thanks to Abby Moller for finding a few typos in this article. Additionally, she has advised me that apparently you do not need to file Form 8971 just for purposes of portability.  I will try to find additional support for this.

Friday, January 8, 2016

Do I Need An Attorney To Prepare A Simple Will?

I occasionally get asked if it is really necessary to hire an attorney to prepare simple estate planning documents.  Usually, the answer is NO, however, I find that once I start asking a few questions, most people really don't need a simple Will and they would be much better served with professional guidance.

Let me take you through some of the questions that I ask to determine whether it is worthwhile to engage legal counsel:

1) Do you have children from a previous marriage?  If so, I strongly recommend that you hire an attorney.
2) Do you minor children?  Most likely you would benefit from professional advice.
3) Are you wealthy?  If you have less than $300,000, I would say you probably would not need an attorney. Between $300,000 - $500,000 is maybe.  Between $500,000 to $2,000,000 is probably.If you have over $2,000,000, I strongly recommend that you hire an estate planning attorney with a masters in taxation.
4) Do you wish to leave money to a person with special needs child, drug/alcohol problems, going through divorce, bad with money or might otherwise require special instructions?  If so, I strongly recommend that you hire an attorney.
5)  Are you leaving money UNEQUALLY to your children or are you cutting out one of your next of kin?  If so, I strongly recommend that you  hire an attorney.
6)  Do you have concerns that your next of kin might fight over your inheritance?   If so, I strongly recommend that you hire an attorney.
7)  Do you plan to leave more than a token amount to charity?  If so, I strongly recommend that you hire an attorney with a masters in taxation.
8)  Do you plan to leave different types of assets to different people?  (For example, a business to one child, one piece of real estate to another child, and an IRA to a third child)  If so, I strongly recommend that you hire an attorney.
9)  Do you intend to leave money to a pet?  Yes - serious question for some and if you do, I recommend using an attorney.
10) Do you own any unusual items that have value (such as artwork, intellectual property, family heirlooms)?  If so, you probably wish to hire an attorney.
11) Do you own assets in more than one jurisdiction?  If so, I recommend using an attorney.
12) Are you elderly and worried that you may need to spend significant time (over 2 years) in a nursing home?  Then you should probably meet with a Medicaid attorney.
13) Where do you live?  In some states, probate is an absolute nightmare, so even with a small amount, you might wish to hire an attorney to help you avoid probate.

So what do I consider a simple situation?  Generally it is a person who has less than $300,000 of traditional assets, has responsible adult children who all get along, and the testator wishes to leave everything outright to those children in a probate friendly state.  Most others could basically save time or money with professional advice.

Tuesday, November 17, 2015

Trouble with Probate

Sometimes probate can be a simple process.  Sometimes it can be a royal nightmare... and sometimes it can be an expensive royal nightmare.

I'm not sure if it is a sign of the times or just a coincidence, but our office has had numerous estates where the probate has not been very easy.  To give an example of some of the problems we have run into recently:
1) An estate where even though there was a Will, the beneficiaries were not the next of kin.  While there was nothing untowards going on as the next of kin were very remote, we had to spend a lot of time and money tracking them down because state law required us to give notice to all next of kin, regardless of whether they are a beneficiary in the Will or not.
2) An estate where the decedent owned worthless land in another state.  This was an estate that was otherwise taxable, so we needed to get a valuation for this property and figure out how to dispose of it because no one wanted the headache.
3) Preparing a last minute amended estate tax return before the time to amend lapsed.  A bad return was prepared by an accountant and when the client came to us to review it, we had to stop all other work to prepare a revised return in order to save our client over $100,000.
4) An estate where the original Will could not be found, so we requested that the Court probate a copy of the Will.
5) An estate where the Will is unclear and requires judicial interpretation on who the beneficiaries are.
6) An estate where the client had many different types of assets and assets located in more than one country.
7) An estate where the executor is unable to travel, so our office is handling all the affairs of the estate and assisting in finding other professionals to value and sell local assets at a fair value.
8) An estate where the beneficiary has contacted us to obtain information from an executor who is refusing to disclose information.
9) An estate where the decedent, rather than formally update his Will, wrote a side letter saying where he wanted some of his assets to go - begging the question of how to handle that letter.

In most of these situations, considerable time and expense could have been saved if the decedent had consulted with an estate planning attorney on a regular basis.  While having a Will and trust can certainly make the estate administration process easier and less expensive, the benefit of hiring an experienced professional is not just that we can draft the routine paperwork.  An attorney that focuses on tax and estate planning can also make sure that you title assets in such a way as to make things smoother and more cost efficient.

Thursday, October 29, 2015

2016 Federal Estate Tax Exemption Amount

The IRS recently released Revenue Procedure 2015-53, announcing the inflation adjustments to many tax provisions.  Of note, the unified credit against the federal estate tax for Calendar Year 2016 is $5,450,000.  This is up from $5,430,000 in 2015.

The annual gift tax exclusion of $14,000 per person/per donee remains the same.  However, the annual gift exclusion to non citizen spouses has increased to $148,000 from $147,000.