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Heckerling Musings 2018 and Estate Planning Current Developments

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Heckerling Musings 2018 and Estate Planning Current Developments Heckerling Musings 2018 and Estate Planning Current Developments April 2018 Steve R. Akers Senior Fiduciary Counsel Bessemer Trust 300 Crescent Court, Suite 800 Dallas, TX 75201 214-981-9407 [email protected] www.bessemer.com Table of Contents Introduction ................................................................................................................................ 1 1. Summary of Top Developments in 2017 ........................................................................... 1 2. 2017 Tax Act and Tax Reform ........................................................................................... 1 3. Estate Planning Considerations In Light of New Legislation and Inherent Uncertainty Arising From 2026 Sunset ................................................................................................27 4. Treasury-IRS Priority Guidance Plan and Miscellaneous Guidance From IRS ....................50 5. Basis Adjustment Planning ...............................................................................................58 6. Family Limited Partnership and LLC Planning Developments; Powell v. Commissioner ..73 7. Exercising Trustee Discretionary Distribution Decisions ...................................................86 8. Uniform Directed Trust Act Paves Way For Creative and Thoughtful Divided Trusteeship .........................................................................................................................................94 9. Charitable Planning Observations ...................................................................................101 10. Estate Planning in Anticipation of a Contest or a Difficult Beneficiary ............................. 104 11. Planning for an Aging Population ....................................................................................109 12. New Partnership Audit Rules Overview .........................................................................111 13. Fiduciary Accoutings to Facilitate Planning and Mitigate Risk .........................................112 14. Portability .......................................................................................................................114 15. Creating Trust With Beneficiary As Deemed Owner Under §678, “Beneficiary Deemed Owner Trust” (BDOT); Application of Letter Ruling 201633021 .....................................116 16. Conversion of CLAT to Grantor Trust, PLRs 201730012, 201730017, and 201730018 ... 124 17. New Procedure for Release of Special Automatic Estate Tax Lien ................................. 124 18. Tax Affecting S Corporation Earnings in Valuing S Corporation Stock ............................. 125 19. Selected Business Planning Issues ................................................................................125 20. Roth IRA Selected Issues ...............................................................................................128 21. Tax Effects of Settlements and Modifications ................................................................128 22. State Income Taxation of Trusts .....................................................................................131 23. Purchase of GRAT Remainder Interest Did Not Work ....................................................132 24. Exercise of Substitution Power ......................................................................................133 25. Garnishment Defeats Spendthrift Protection ..................................................................133 www.bessemer.com/advisor i 26. Recurring Elder Abuse Issues ........................................................................................134 27. Developments Regarding Fiduciary Access to Digital Assets. ........................................135 28. Electronic Wills Act ........................................................................................................136 29. Decanting Authority and Creditor Effects, Ferri v. Powell-Ferri .......................................136 30. Interesting Quotations ....................................................................................................137 Copyright © 2018 Bessemer Trust Company, N.A. All rights reserved. April 24, 2018 Important Information Regarding This Summary This summary is for your general information. The discussion of any estate planning alternatives and other observations herein are not intended as legal or tax advice and do not take into account the particular estate planning objectives, financial situation or needs of individual clients. This summary is based upon information obtained from various sources that Bessemer believes to be reliable, but Bessemer makes no representation or warranty with respect to the accuracy or completeness of such information. Views expressed herein are current only as of the date indicated, and are subject to change without notice. Forecasts may not be realized due to a variety of factors, including changes in law, regulation, interest rates, and inflation. www.bessemer.com/advisor ii Introduction The 52nd Annual Philip E. Heckerling Institute on Estate Planning was held in Orlando during the week of January 22, 2018. This summary includes observations from that seminar, as well as other observations about various current developments and interesting estate planning issues. My goal is not to provide a general summary of the presentations. Rather, this is a summary of observations of selected items during the week as well as a discussion of other items. I sometimes identify speakers, but often do not (some topics are discussed by various speakers). I take no credit for any of the outstanding ideas discussed at the Institute — I am instead relaying the ideas of others that were discussed during the week. 1. Summary of Top Developments in 2017 Ron Aucutt (Washington D.C.), provides the following as his “top ten” list of the major developments in the estate planning world in 2017: (1) The 2017 Tax Act (see Item 2 below); (2) Regulatory environment in the Trump administration (see Item 4.a below); (3) An extreme family limited partnership case (the Powell case, see Item 15.g below); (4) Withdrawal of the proposed regulations under §2704 (see Item 6.e below); (5) Continued tension between Congress and the IRS; (6) Developments with portability on several fronts (including Rev. Proc. 2017-34, and the Sower and Vose cases; see Item 14 below); (7) Growing legislative acceptance of asset protection trusts; (8) Measured retroactive relief for same-sex married couples (Notice 2017-15; see Item 4.f below); (9) Decline of state estate taxation; and (10) Challenges to the substantiation of charitable contributions, including conservation easements (see Item 9.d below). Aucutt, Ron Aucutt’s “Top Ten” Estate Planning and Estate Tax Developments of 2017, McGuireWoods Website (posted January 11, 2018). 2. 2017 Tax Act and Tax Reform a. Estate Tax Repeal History-1986 Tax Reform Act; Proposals for 2017. Estate tax repeal has been considered by various administrations. One staffer from 1986 has stated that negotiation of the momentous 1986 Tax Reform Act came down to one last item. The legislative staffers told President Reagan that he could get rid of the estate tax, but he would have to give up the B-2 bomber. President Reagan replied that he would rather keep the B-2 bomber. www.bessemer.com/advisor 1 The House Republican Blueprint for Tax Reform published June 24, 2016 included a proposal to repeal the estate and GST tax (but presumably to retain the gift tax). President Trump’s campaign proposal was to “repeal the death tax, but capital gains held until death and valued over $10 million [presumably that is per couple] will be subject to tax to exempt small businesses and family farms.” The 2017 Tax Act, as described below, does not repeal the estate and GST tax but roughly doubles the estate and gift tax exclusion amount for 2018-2025. b. Legislative Process for Tax Reform Using Reconciliation. The process for getting tax reform legislation in 2017 was using the budget reconciliation act. The Congressional Budget Act of 1974 (Titles I – IX of the Congressional Budget and Impoundment Control Act of 1974) modified and clarified the role of Congress in the federal budgetary process. It governs the process of annual budget resolutions and budget reconciliations. Title II created the Congressional Budget Office (CBO) to give Congress independent economic analysis; previously the Executive Branch controlled budgetary information. Standing budget committees in the House and Senate were created and additional staffing was authorized for committees involved with budget decisions. (1) Budget Resolution. Title III specifies procedures for the adoption of an annual budget resolution, which is a concurrent resolution that is not signed by the President, that sets out fiscal policy guidelines for Congress (but Congress does not adopt a budget resolution in all years, for example it did not do so last year). (The budget resolution cannot be filibustered in the Senate.) The budget resolution does not enact spending or tax law, but sets targets of overall receipts and expenditures, based on CBO estimates, for other committees that can propose legislation changing spending or taxes. The limits on revenue and spending that it establishes may be enforced in Congress under “points of order” procedural objections (which requires 60 votes in the Senate to waive). Budget resolutions set spending and revenue levels for a budget window (at least five
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