Estate Planning News
by Layne T. Rushforth
Marital Status under Federal Tax Law. As of September 2, 2016, a marriage of two individuals is a marriage for federal tax purposes if their marriage would be recognized by the state, possession, or territory of the United States in which the marriage was performed. Thus, gay marriages that are valid marriages in the state or territory in which they were performed are valid for federal tax purposes. Registered partnerships and civil unions are not treated as marriages. [IRS T.D. 9785 (August 31, 2016)]
Valuation Discounts. The IRS as issued proposed regulations that would virtually eliminate valuation discounts in the valuation of family-controlled businesses. Most tax advisors are recommending that their clients make gifts before the end of 2016 if they intend to make gifts of minority business interests. For a summary by Willamette Management Associates, click here.
Presidential Candidates' Tax Proposals. The two major parties' presidential candidates have published their tax policies. For a summary, click here.
Tax Law Update
Congress has once again extended the "extenders," a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which have been on the books for years but which technically are temporary because they have a specific end date. This package of tax breaks has repeatedly been temporarily extended for short periods of time (e.g., one or two years), which is why they are referred to as "extenders." Most of the tax breaks expired at the end of 2014. Now, in the recently enacted Protecting Americans from Tax Hikes Act of 2015 (i.e., the PATH Act), the extenders have been revived and extended once again, but this time Congress has taken a new tack. Instead of just rolling the package of provisions over for a year or two, it made some of the provisions permanent and extended the remaining provisions for either two or five years, while making significant modifications to several of the provisions.
The extended provisions include:
- tax credits for low to middle wage earners that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2017—made permanent; these tax credits are:
- the American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post-secondary education,
- eased rules for qualifying for the refundable child credit, and
- various earned income tax credit (EITC) changes;
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2015 Nevada Law Changes
Signed by the Governor
- Senate Bill 264. To avoid conflicting limitations periods, Senate Bill 264 exempts spendthrift trusts covered by NRS Chapter 166 from the application of the fraudulent transfers act under NRS Chapter 112. It was signed by the Governor on May 28, 2015 and will become effective October 1, 2015. To download the full text of Senate Bill 264 as approved by the Nevada Legislature, click here.
- Assembly Bill 130. Increases the estates that are subject to "summary administration" from $200,000 to $300,000 and increases the amount that can be claimed by affidavit from $20,000 to $25,000 for unmarried persons and to $100,000 for a surviving spouse or domestic partner. It was signed by the Governor on May 25, 2015 and will become effective October 1, 2015. To download the full text of Assembly Bill 130 as approved by the Nevada Legislature, click here.
- Senate Bill 483. Senate Bill 483 is the key business tax revenue bill for 2015, and most of its provisions will take effect on July 1, 2015 although some administrative provisions are effective as of June 9, 2015, and some provision have delayed effective dates. Some of the changes include:
- Imposition of annual commerce tax for businesses with a gross revenue of $4 million or more, including sole proprietorships. The tax rate depends on the business category.
- Modifies the payroll tax, including a change in rate for some businesses and allowing a credit of 50% of the commerce tax.
- Increases the cigarette tax by $1 per pack.
- Increases the business license fee to $500 for corporations, but the fee remains at $200 for limited-liability companies and other business entities.
- Increases the initial and annual list filing fees for business entities by $25 (from $125 to $150 as to for-profit entities and from $25 to $50 for nonprofit entities).
- Eliminates some "sunset" provisions to some tax laws so that laws that were scheduled to terminate remain in effect.
- To download the full text of Senate Bill 483 as approved by the Nevada Legislature, click here.
- Senate Bill 484. Senate Bill 484 contains changes to various Nevada statutes that relate to trust and estate issues. It was signed into law by the Governor on June 9, 2015, and its provisions will take effect on October 1, 2015. Some of the changes include:
- Clarifying the impact of having a will approved by the probate court prior to the testator's death. [Sec. 13]
- Allowing the waiver of a probate inventory. [Secs. 18 and 19]
- Giving the court personal jurisdiction over some of the parties in an estate-related court proceeding. [Sec. 25]
- Modifying the presumption that certain asset-transfer documents are invalid when produced at the request of persons benefiting from the documents. The current law [NRS 155.093 through 155.098] applies only to documents effecting a transfer at death, and the new law will apply to lifetime transfers. The definition of "caregiver" is modified to apply only to caregivers who are compensated. [Sec. 27 through Sec. 34]
- Allowing an abusive executor or administrator to be declared to be "vexatious" and removed by the court. [Sec. 35]
- Clarifying the laws related to "directed trusts" [NRS 163.5549 and 163.555], changing the term "excluded fiduciary" to "directed fiduciary" and defining the term "directing adviser". [Secs. 42, 43, 54-56]
- Allowing the creation and administering of public benefit trusts, which are trusts without identifiable beneficiaries that are not charitable trusts and that are established to further one or more specifically declared religious, scientific, literary, educational, community development, personal improvement or philanthropic purpose. [Sec. 44]
- Confirming Nevada's statutes relating to the creation of trusts [NRS 163.002, 163.003, and 163.004] permitting the owner of property to declare such property to be trust property without a formal change of title and providing that the income and reinvestments of such property are also trust property. [Sec. 48]
- Confirming that trusts established in Nevada are irrevocable unless a power of amendment or revocation is reserved. [Sec. 49]
- Clarifying Nevada's "decanting" statutes [NRS 163.556], which allow a second trust to be split off from an irrevocable trust. [Sec. 57]
- Confirming that arbitration clauses in a trust are enforceable. [Sec. 60]
- Allowing nonjudicial settlements relating to trusts and estates. [Secs. 61 and 62]
- Giving the court personal jurisdiction over some of the parties in a trust-related court proceeding. [Sec. 63]
- Confirming that the probate court may entertain a petition to declare assets to be trust property under NRS 163.015, commonly referred to as a "Heggstad petition" and confirming that the court may also entertain declaratory judgment petitions filed pursuant to NRS 30.040. [Sec. 64]
- Extending the procedure relating to a "Notice of Proposed Action" to all aspect of trust administration, reducing the need for a trustee to file petitions with the court for instructions or authorizations to perform certain actions. [Sec. 67]
- Clarifying the duty of a trustee to inform and account to a trust's beneficiaries and making the same trust accounting rules apply to testamentary trusts and inter vivos trusts. [Sec. 71 through Sec. 84]
- To download the full text of Senate Bill 484 as approved by the Nevada Legislature, click here.
Constitutionality of Nevada's Statutory Rule Against Perpetuities
- Constitutional Arguments. Some estate planning experts have raised questions about the constitutionality of Nevada's rule against perpetuities, but the concerns have been allayed by the Nevada Supreme Court's decision in Bullion Monarch v. Barrick Goldstrike, 131 Nev. Adv. Op. 13.
- More Detailed Discussion. To download a memo discussing this issue, click here.
2013 Transfer-Tax Law Changes
- Transfer Taxes in 2013 - On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which provides for these changes to the federal transfer taxes, which include the gift tax, the estate tax, and the generation-skipping transfer tax:
- The top transfer-tax rate moves from 35% to 40%.
- The $5 million applicable exclusion that applies to the estate tax, the gift tax, and the generation-skipping transfer tax will continue. That amount is adjusted for increases in the cost of living index. The exclusion amount was $5,120,000 for 2012 and will be $5,250,000 for 2013. (For a table in a new browser window that shows the historical exclusion amounts, click here.)
- The law relating to the annual exclusion for the gift tax was not changed, but the cost-of-living adjustment will make the gift-tax exclusion $14,000 for 2013.
- Some of the previously proposed changes did NOT occur, leaving intact the current law regarding:
- “Portability” of a predeceased spouse’s unused exclusion. With certain restrictions, a surviving spouse can take advantage of the applicable exclusion not used by the predeceased spouse.
- Valuation discounts. The valuation business interests and property interests continue to be subject to "discounts" for lack of control and lack of marketability.
- Short-term GRATs. There is no requirement that a grantor-retained annuity trust (GRAT) have a term of at least 10 years. There is no restriction on GRATs that have a remainder interest with no value.
- Term of GST trusts (“dynasty trusts”). There is no 90-year limit on the term of an irrevocable trust.
- Grantor Trusts. There is no change to the criteria for a grantor trust, which is a trust whose income is taxed to the grantor, even if the grantor is not a beneficiary of the trust and even if the trust assets will not be included in the grantor's estate for federal estate-tax purposes.
- Most notably, the “sunset” provisions of the prior law were repealed, which means that the law will stay the same until new legislation is enacted. This means the law is as “permanent” as Congress can make it.