My last Newsletter was posted on April 23, 2015, and time has gone by with lots of new developments and information on estate and succession planning. In this Newsletter, I summarize the imperative of updating and improving our own and our clients' estate and succession planning. Then I set out some of the CPE events, involving webcasting, in which I am participating this year. Finally, I will outline briefly some of the new developments in succession planning, including various judicial decisions of interest.
Estate and Succession Planning Imperative - Now is the Time!
After enactment of the American Taxpayer Relief Act of 2012 (ATRA), many clients and even some practitioners concluded that "estate planning" no longer was important. This was primarily due to the effectively permanent large Federal unified gift and estate tax exemption per person of $5 million and more. For example, this year that exemption, due to annual inflation indexing, is $5.43 million - this effectively eliminates any Federal estate tax concern for over 99% of American families. Yet, estate and succession planning is more important than ever, for both tax and non-tax reasons!
First of all, 19 States still have an estate or inheritance tax regime, and some of these jurisdictions have much lower exemption levels than that for the Federal estate tax. So tax practitioners must know your own State law, and in some cases this will dictate planning for domicile purposes including for pass-through entities such as FLPs and FLLCs. Second, for numerous reasons, including changes in marital status, family make-up and other factors, many estate plans are out-of-date. And certainly, with the recent Supreme Court decision (mentioned below) on same-sex marriage, planning must be reviewed for such couples and State laws still are not in sync fully with the U.S. Supreme Court.
Next, we should remember that the IRC Sec. 1014 step-up in income tax basis on appreciated value property at death of the owner can be quite valuable. In the Federal scheme of things, the now permanent "Portability Election" (only made by filing of a Federal estate tax return (Form 706) even if only for that purpose) allows for step-up at the death of the surviving spouse which could be many years after the death of the first spouse to die. And if a "bypass trust" still should be used, can it be drafted so as to still allow for step-up on the death of the surviving spouse?
Beyond these issues, there are many reasons for continuing to be involved in estate and succession planning. After all, the old saying "You Can't Take It (Property) With You" still is quite true! Some of the non-tax and yet still quite important issues include: planning for blended families with children of different relationships, issues involving same-sex couples whether married or not, post-marital dissolution planning including title to property and beneficiary designations, retirement plan and IRA beneficiary designation planning, various types of asset protection trusts and picking the right trust jurisdiction, and structuring management and equity succession plans for non-public family-owned business entities.
Owen's CPE Activities
Currently, I am actively involved in live webcasts for two (2) CPE providers, namely, CPE Link (www.cpelink.com) and CPE Credit (www.cpecredit.com), having scheduled from now until the end of 2015 some 20 or so live webcasts, with 4 courses all related to estate and succession planning - CPE Link courses include August 11 and 24 2-hour courses (one on Valuation, the other on Buy-Sell and Deferred Compensation Agreements), plus 6 more course presentations in succeeding months. CPE Credit courses will run from September through December this year - I encourage you to check out the websites for details! Also, there are filmed CPE courses, including a 2-hour course titled "Estate & Succession Planning for the 99%", scheduled by www.westerncpe.com; as well as several on demand filmed webcasts provided by the Clear Law Institute (www.cleinstitute.com)
Now Some New Developments - Brief Comments
ESTATE OF JOHN A. PULLING, SR. V. COMMISSIONER OF INTERNAL REVENUE, T.C. Memo. 2015-134 (7/23/15) - here a taxpayer valuation case victory, confirming that, absent evidence to the contrary, the Tax Court will NOT conclude that parcels of land owned by an estate (here a Florida resident) will be "assembled" or combined with contiguous parcels owned by a land trust for valuation purposes, even if the decedent's family members and decedent himself together (if attribution of ownership) had control of the land trust. Only such a combination of all the properties would produce a package worthy of residential development, but the IRS failed to provide evidence of any "agreement" or "understanding" of such a combination of owners to develop the various parcels as a single unit.
The Family Business Consulting Group newsletter (June, 2015) contains a worthwhile article on "Embracing Change and Honoring the Past: The Challenge of Family Business" - this is "must reading" for practitioners with closely-held family business clients - succession planning is an important area!
LIKELY PROPOSED TREASURY REGULATIONS ON IRC Sec. 2704 - to lay out a broader area of "applicable restrictions" that might impinge on our ability to develop valuation discount strategies - see the KPMG Report of 7/12/2015 about these regulations that could be issued as early as next month. We need to watch this issue for sure! See www.kmpgcom for additional information. Also, see the June 4, 2015 article as part of the Trusts & Estates "www.wealthmanagement.com" series.
DETROIT PISTONS OWNER AND BILLIONAIRE BILL DAVIDSON'S ESTATE SETTLES WITH IRS - a case settling the docketed Tax Court dispute for under $400 million when IRS was seeking $12.7 billion (Yes, Billion!). The issues included corporate stock valuation and issues involving valuation of Self-Cancelling Installment Notes (SCINs). As usual THE source for great new developments info is www.leimbergservices.com - which includes regular informative newsletters for subscribers on estate planning and other areas. On July 15, 2015, Steve Leimberg published an excellent and comprehensive article on the Davidson case in the LISI Estate Planning Email Newsletter #2322 - get it and read it!
SAME-SEX MARRIAGE ISSUE - Again the Supreme Court has dealt with same-sex marriage, and in the LISI Estate Planning E-Mail Newsletter #2326 (7/23/15), commentator on the U.S. Supreme Court case of Obergefell, et al. v. Hodges, et al. (George Karibjanian) stated, in part, "While Obergefell lays to rest the question of whether same-sex marriage is legal and recognized in all 50 states, practitioners now must review the various aspects of property and probate law (in the respective States) and see the degree to which retroactivity would apply." That is, have new rights been created and what should be done for a same-sex couple in a State that previously refused to recognize same-sex marriage?
One final item - THE CRUMMEY/CRISTOFANI CASE LAW-BASED IRC Sec. 2503(b) based annual exclusions once again have been recognized (even though Treasury now wants some changes!), in ISRAEL MIKEL V. COMMISSIONER OF INTERNAL REVENUE, T.C. Memo. 2015-64 (4/6/2015) - in a year when the 2503(b) exclusion for gift tax purposes was $12,000 per donor, per donee, the donor husband and wife in these consolidated cases gifted to an irrevocable family trust an aggregate of $1,440,000 in property value - there were 60 beneficiaries - and the Tax Court granted taxpayers' motion for summary judgment in their favor - read this one for the latest on this issue. I was privileged to be lead taxpayer counsel way back in 1991 in the case of Estate of Maria Cristofani, 97 T.C. 74 (1991) - extending the Crummey Trust setup to contingent remainder beneficiaries having a lapsing legal power of withdrawal.
So all of you have a great rest of the summer and fall!