After the ball drops in Times Square for the New Year, a considerable number of attorneys, accountants and trust officers finalize their travel plans to visit Orlando, Florida. No, it is not to see Mickey and Minnie Mouse at Magic Kingdom, but to attend the Heckerling Conference held by the University of Miami to listen to the preeminent speakers in estate planning. Once again, Withum’s Private Client Services tax partners summarized each day’s discussion with key points and insights. Leading off the insights of the first day is Hal Terr, Practice Co-Leader of Withum’s Private Client Services Group.

This year’s conference has 3,400 professionals attending, exceeding the prior year attendance records which emphasize that even with great change in the law, there will always be the two constants of death and taxes. The Recent Developments section this year was presented by Steven Akers, Samuel Donaldson and Amy Kanyuk and provided an overview of recent IRS pronouncements of the 2017 Tax Act as well as tax court decisions in the areas of estate and gift.

The recent proposed regulation from the IRS indicates that there will be no claw back if a taxpayer utilized the increased gift exemption, currently $11.4 million, under the 2017 Tax Act prior to 2025 and the law sunsets after 2025 to $5 million, indexed for inflation. This will provide some certainty to high net worth individuals that they can utilize the increased gift and estate exemption and not created a tax liability if the exemption is less when they eventually pass away. In addition, it was discussed that the increase in the Generation Skipping Tax (GST) exemption can be allocated to pre-existing trusts established prior to the passage of the 2017 Tax Act. For some trust this can then lower or reduce the inclusion ratio to zero for prior GST trust to reduce any GST tax in the future.

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The new year brings a new administrative change by the IRS for the filing of gift and estate tax returns. For a long time, gift and estate tax returns have been mailed to the IRS processing center in Cincinnati, Ohio. Effective January 1, 2019 all gift tax returns will be filed and mailed to the IRS processing center in Kansas City, Missouri and effective after June 30, 2019 all estate tax returns will be filed and mailed to the IRS processing center in Kansas City, Missouri.

With the increased estate exemption some high net worth individuals do not want to incur the expense of filing of an estate tax return on the death of the first spouse just to elect portability. Prudent practice of estate attorneys and accountants would get in writing the surviving spouse’s intentions to avoid any disputes at a later time. There is not extension for portability election if the estate is required to file an estate tax return if the estate exceeds the estate exemption at the time of the decedent’s passing. However, if the estate is not required to file estate return, the executor can make portability election within 2nd anniversary of decedent’s passing under administrative relief and not have to apply for a costly private letter ruling.

Recent proposed regulations for Qualified Business Income and deductions for trusts and estates were then discussed. The details of the operations of the Qualified Business Income (QBI) deduction will be discussed in a future presentation but there were three important items that were highlighted. The first is that the QBI deduction does not reduce an individual’s tax basis in the flow-through entity. For trusts, the QBI deduction will be allocated between trusts/estates and the beneficiaries in the same proportion of the allocation of Distributable Net Income (DNI). Finally, there will be a presumption by the IRS under code section 643(f) that multiple trusts with the same grantor and substantially the same beneficiaries will be combined if the only reason for the multiple trusts is to get a benefit for the QBI deduction. Final regulations to provide additional clarity for the QBI deduction are expected but delayed to the recent government shutdown.

For individuals, miscellaneous deductions such as tax preparation fees and investment management fees are no longer deductible under the 2017 Tax Act. There was some uncertainty of the deductibility of these items for fiduciary income tax purposes for trusts and estates. The IRS issued Notice 2018-61 to allow trusts and estates to deduct expenses incurred for the administration of the trust/estate, including trustee fees, accounting and attorney fees. However, investment management fees would not be deductible, including any investment management fees incorporated in the trustee fee.

The priority guidance plan of the IRS was issued in November 2018 which provides an insight of future pronouncements by the IRS. In the estate and trust area, the guidance plan addressed the IRS’s intention to reduce the administrative burden for basis consistency reporting to beneficiaries of an estate. Currently executors are required 30 days after the filing of an estate tax return to report the basis of assets inherited by a beneficiary. In addition, the IRS included in the priority guidance plan issuing rules to determine basis adjustments for assets owned by a grantor trust.

Those were the highlights from the first day. Continue on to Day 2 of the Heckerling. For more information or to contact Withum’s leaders, fill in the form below.


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