Posts Categorized: BBA News

Upcoming Trusts & Estates Events at the BBA – June 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Upcoming Trusts & Estates Section Programs at the BBA this month: 

Trusts & Estates End of Year Review 2021    Monday, June 21, 2021, 2:00 pm – 3:00 pm  An annual event not to be missed, the Trusts & Estates End of Year Review covers recent federal and state case law, legislation and tax law matters, with updates presented by the New Developments Committee, Public Policy Committee and Tax Law Updates Committee.

Upcoming Trusts & Estates Events at the BBA – May 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Upcoming Trusts & Estates Section Programs at the BBA this month: 

Trust Administration and Recent Developments in Massachusetts Divorce Law    Thursday, May 20, 2021  Our panelists will discuss recent developments in divorce law relating to trusts and how these developments can impact the drafting and administration of trusts to protect assets in the event of a beneficiary divorce.

Wealth and Estate Planning in the Digital Age: A Guided Tour of Cryptocurrencies, Non-Fungible Tokens, and Other (Stunningly Valuable) Digital Assets  Monday, May 24, 2021   Our distinguished panel will explore the rapidly evolving world of digital property, to look at how old ideas (like burying gold in the backyard) are being translated into new and exotic technologies.  The panel will then examine the extraordinary impact that these new technologies are having on what used to be prosaic estate planning strategies. For example, Bitcoin, with its staggering volatility, is an asset well-suited for funding a Grantor Retained Annuity Trust – or GRAT.  Meanwhile, the secrecy – and value – of passwords and passkeys in the digital era is the equivalent of holding the treasure map to Blackbeard’s buried treasure; if it is not preserved carefully and passed on at death, the treasure can be lost forever.  And that could lead to a personal representative’s nightmare: the IRS recently held that the estate of an individual who died owning millions of dollars’ worth of cryptocurrency owed tax of the known value of those assets at death, even though the passkey was lost with the death of the decedent and the assets are now unreachable by the estate!  Come join us for a fascinating journey to the intersection of technology, huge wealth, and estate planning, where tax analysis and science fiction often complete – and sometimes collide.  

Upcoming Trusts & Estates Events at the BBA – April 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Upcoming Trusts & Estates Section Programs at the BBA this month: 

Nonprobate Transfers: Joint, Property, Retirement Planning, Life Insurance Beneficiary Designations Wednesday, April 7, 2021 This program will provide an overview of nonprobate transfers, which involve the transfer of a decedent’s property by methods other than via probate of the decedent’s will.  The presentation will specifically highlight the treatment of joint property, retirement assets, life insurance and the use of beneficiary designations.

Proving Testamentary Capacity At Trial  Wednesday, April 14, 2021 This program will review the standard for testamentary capacity and will explore the role of fact and expert witnesses and how to and select and prepare those witnesses.

Special Needs Planning Tools: Trusts, ABLE accounts, and other planning considerations  Wednesday, April 21, 2021 Our expert panelists will compare and contrast the various tools available to estate planners with respect to special needs planning. Discussion will include a comparison of individual and pooled trusts, first party and third party trusts, and newer tools such as ABLE accounts. Attendees will be provided a summary chart handout at the end of the presentation. 

Last Month at the BBA – Trusts & Estates Section Events in March 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Trusts & Estates Section Programs at the BBA this month: 

A Practical Guide to Estate Administration Wednesday, March 3, 2021 This program will provide an overview of the basic steps to administer the estate of a deceased person, including probate, paying debts, satisfying creditor claims, preparing income and estate tax returns, accountings and distribution of the decedent’s assets.

Estate Planning for Private Equity Professionals and Firm Principals Monday, March 15, 2021  This program will cover tax and estate planning issues that commonly arise when representing private equity professionals and firm principals.  The presentation will include an overview of the unique nature of private equity fund interests, including carried interest, as well as the particular challenges and tax-planning opportunities they present for estate planners at different stages of the fund life cycle.

Special Needs Planning: Guidance and Strategies for Estate Planning, Trust Administration and Beyond Monday, March 22, 2021 There are several unique and complex considerations when planning for beneficiaries with special needs. Those who attend this CLE will receive practical guidance and tips from our expert panelists on several topics, including: when to use a special needs trust (SNT), the types of SNTs and drafting considerations, serving as a special needs trustee, trust distributions and asset management, and other related topics.

 

Biden Campaign’s Proposal to Eliminate the Step-Up in Basis at Death

By: Katie Sapp, Day Pitney

In the wake of the change of administration, many have continued to speculate about what tax reforms we can expect from the Biden administration and Democratic-controlled Congress.  While the likelihood of imminent tax reform is still widely unknown, proposals from President Biden and his campaign during the 2020 presidential race suggest that they have part of their focus on eliminating the step-up in basis for property transferred at death.

Early in Biden’s campaign, he told fundraisers that he would like to “close loopholes like capital gains and stepped-up basis.”  In a more recent proposal, Biden’s Plan for Education Beyond High School explicitly states that it would raise funds to support said plan in part by “eliminating the stepped-up basis loophole.”  More generally, Biden’s campaign highlighted their commitment to capital gains reform with the goal of getting rid of capital gains tax loopholes for the wealthy.  In addition to eliminating the step-up in basis, Biden has proposed increasing the income tax rate on capital gains above $1 million to the same rates as ordinary income.

Biden has not elaborated on what eliminating the stepped-up basis would look like.  With such little information surrounding this proposal, commentators have had to look to other sources for more detail, such as the “Greenbook” revenue proposals of the Obama Administration.  The final 2016 edition of the Greenbook includes a proposal to “Reform the Taxation of Capital Income.”  This plan would treat the transfer of property at death or during life as a realization event, thereby imposing an income tax on the property’s appreciation.

The Greenbook includes the following additional details:

  • The gain would be taxable income to the donor in the year the gift was made, and to the decedent either on the final individual return or on a separate capital gains return. The tax imposed on gains realized at death would be deductible on the decedent’s estate tax return, if any.
  • Gifts or bequests to a spouse or charity would carry the donor’s basis. Capital gain would not be realized until the spouse’s later death or disposal of the asset.  Any property donated to charity would be exempt from capital gains tax.
  • No gain would be realized on tangible personal property, specifically excluding collectibles.
  • The current $250,000 in the case of single taxpayers (and presumably the $500,000 in the case of married taxpayers filing jointly) exclusion of capital gain on a principal residence would be extended to apply to all residences. Every taxpayer would also be allowed an additional exclusion of capital gains up to $100,000 (indexed for inflation).  Both exclusion amounts would be portable to a surviving spouse.
  • To facilitate and implement the proposal, the Greenbook outlined additional legislative changes that would take effect, including: the allowance of a deduction for the full cost of appraisals of appreciated assets, the imposition of liens, the waiver of penalty for underpayment of estimated tax if the underpayment is attributable to unrealized gains at death, and broad authority granted to the Secretary to issue regulations as necessary, among other changes.

Noting that the Biden administration has not formally submitted its own proposal with respect to reforming taxation on capital income, the Greenbook proposal might accurately reflect the current administration’s vision.  That said, assuming the Greenbook proposal were adopted in full, we could see a dramatic decrease in inheritances.  For example, assume a taxpayer with more than $1 million in annual income bought $10,000 worth of X shares 20 years ago.  Assume further that, today, those shares are worth $500,000 and that she leaves these shares to her only child.  As of today, that child would receive the full $500,000 worth of shares (subject to estate tax) and the new basis for those shares would also be $500,000.  The child could then sell those shares with an effective appreciation of $0 and have no capital gains tax liability. 

Assuming the facts above and that Biden’s plan also includes the taxation of capital gains at the same rates as ordinary income, the new capital gain tax liability would be $194,040 at the top proposed rate of 39.6%.  The child would now only receive $305,960 worth of shares (subject to estate taxes).

Eliminating the step-up in basis at death would have serious implications for wealthy individuals looking to pass significantly appreciated assets to their heirs.  That said, it’s not entirely clear whether or not the step-up in basis will actually be eliminated.  For one, the Biden administration has not provided any detail as to their own plans for implementing this proposal.  In addition, this is not the first time an elimination of the stepped-up basis has been proposed.  Even with a Democratic-controlled Congress, interest in this issue may wane in favor of other issues as it makes its way through the deal-making process.  Still, this is a potential change in law estate planners should keep an eye on, particularly if and when the Biden administration begins to provide more details on this proposal.

Upcoming Trusts & Estates Events at the BBA – March 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Upcoming Trusts & Estates Section Programs at the BBA this month: 

A Practical Guide to Estate Administration Wednesday, March 3, 2021 This program will provide an overview of the basic steps to administer the estate of a deceased person, including probate, paying debts, satisfying creditor claims, preparing income and estate tax returns, accountings and distribution of the decedent’s assets.

Special Needs Planning: Guidance and Strategies for Estate Planning, Trust Administration and Beyond Monday, March 22, 2021 There are several unique and complex considerations when planning for beneficiaries with special needs. Those who attend this CLE will receive practical guidance and tips from our expert panelists on several topics, including: when to use a special needs trust (SNT), the types of SNTs and drafting considerations, serving as a special needs trustee, trust distributions and asset management, and other related topics.

 

Last Month at the BBA – Trust & Estate Section events in January and February 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Missed it?   You can still benefit from prior Trust & Estates Section programming at the BBA: 

Modifying Irrevocable Trusts: Decanting, Non-Judicial Settlement Agreements and other Trust Amendment Alternatives   Wednesday, January 6, 2021  This program will provide an introduction to various methods for modifying an irrevocable trust, including how and when to consider: (1) Modifications under the Massachusetts Uniform Trust Code, (2) reformations, (3) non-judicial settlement agreements, and (4) decanting.

Breach of Fiduciary Duty Litigation: Superior Court versus Probate & Family Court   Wednesday, January 13, 2021  A panel of probate litigators will share insights for bringing fiduciary duty claims and defending those claims, whether brought in Superior Court or the Probate & Family Court. The panelists will also explore litigation tactics applicable to each court as well as alternate dispute resolution and settlement opportunities.

Ethical Dilemmas and Considerations in Representing Impaired Clients   Wednesday, January 13, 2021   According to a leading mental health organization, 1 in 5 adults in the United States suffers from some form of mental health condition or disorder. It is likely that at some point in your legal career, you will represent an individual client, or a representative of a corporate client, who suffers from some degree of mental incapacity. Knowing how to assess capacity and deciding how to proceed if you have doubts about your client’s mental health is easier said than done. This first part in a 3-part series of programs will focus on an attorney’s legal and ethical duties when facing the prospect of representing a mentally impaired client.

Trusts & Estates Mid-Year Review    Tuesday, January 19, 2021   An annual event not to be missed, the Trusts & Estates Mid-Year Review covers recent federal and state case law, legislation and tax law matters. This year’s program will touch on:

  • New Developments Committee:  The committee will review recent estate planning and administration cases.
  • Public Policy Committee:  The presentation will include an overview of recent and pending legislation.
  • Tax Law Updates Committee:  The committee will report on important updates regarding the Internal Revenue Code, federal tax law, recent cases, private letter rulings, charitable planning updates, retirement cases and other interesting developments.

Charitable Giving Basics for Estate Planners Wednesday, February 3, 2021  This program will provide an introduction to charitable planning. We will discuss the reasons for charitable giving, the types of property that can be used to make a charitable gift, and the techniques that can be used to achieve clients’ charitable goals.

Special Drafting Considerations for Elderly Clients Thursday, February 11, 2021  Attorneys Patricia Keane Martin and Kristin Dzialo will discuss special drafting considerations for practitioners to be mindful of when advising elderly clients.  Specifically, they will discuss language concerning end of life decision-making and care, and the importance of counseling clients on the implications of including or excluding certain powers from their documents with an eye towards protecting the client and achieving his or her planning goals. The discussion will be beneficial both for practitioners new to estate planning and for seasoned estate planners.

Transferee and Fiduciary Liability for Estate Tax Applied to Second Level Transferee and Fiduciary. United States v. Estate of Kelley, et al., No. 3:17-CV-965-BRM-DEA (D.N.J. Oct. 22, 2020)

By: Ryan Tompkins, Sullivan & Worcester

Background:

Lorraine M. Kelley (“Kelley”) died on December 30, 2003.  Kelley’s brother, Richard Saloom (“Saloom”) and Richard J. Lecky were appointed as co-executors of Kelley’s estate.  The executors filed a federal estate tax return for Kelley’s estate reporting a gross estate of approximately $1.7 million, which was adjusted to roughly $2.6 million upon examination by the IRS resulting in an additional tax liability.  Saloom consented to the assessment in June of 2006.  In late 2007, Saloom began making payments toward the tax liability.

Saloom was the sole beneficiary of Kelley’s estate.  By January of 2008, Saloom had distributed the entire estate to himself, although more than $450,000 remained outstanding in federal estate tax due.  Saloom died on March 21, 2008.  The gross value of Saloom’s estate totaled approximately $1.1 million.

Saloom’s daughter, Rose Saloom (“Rose”), was the sole beneficiary and executor of Saloom’s estate.  After Saloom’s death, Rose filed a New Jersey inheritance tax return for Saloom’s estate listing a $456,406 debt for “federal tax” and she made several payments toward the outstanding estate tax liability for Kelley’s estate.  Rose did not, however, retire the entire balance.  Rose instead distributed the remaining assets of Saloom’s estate to herself leaving the estate insolvent.  As of September 2, 2019, the unpaid balance of Kelley’s estate tax liability with accrued penalties and interest was $688,644.

Analysis:

Attorneys from the Tax Division of the United States Department of Justice filed a complaint in federal district court asserting transferee liability and fiduciary liability for the estate tax against Rose, as executor of Saloom’s estate and individually, among other claims and requests for relief.

Section 6324(a)(2) of the Internal Revenue Code imposes personal liability on certain transferees of the decedent’s gross taxable estate when the estate itself fails to pay any estate tax.  The transferee’s liability is limited to the value of property received from the estate.

The federal insolvency statute, 31 U.S.C. § 3713, places personal liability on the executor of an estate who pays the debts of the estate or distributes assets of the estate, before paying a claim of the United States.  This rule is intended to preserve the priority of debts due to the United States.  Personal liability can attach, to the extent of the distribution, if the government establishes that (1) the fiduciary distributed the assets of the estate; (2) the distribution rendered the estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive knowledge of the liability for unpaid taxes.  See United States v. Tyler, No. 10-1239, 2012 U.S. Dist. LEXIS 34093, at *10 (E.D. Pa. Mar. 13, 2012), aff’d 528 F. App’x 193 (3d Cir. 2013).  Fiduciaries can be deemed to have had constructive knowledge if they had “notice of facts that would lead a reasonably prudent person to inquire as to the existence of the debt owed before making the challenged distribution or payment.”  528 F. App’x at 201 (quoting United States v. Coppola, 85 F.3d 1015, 1020 (2d Cir. 1996)).

Liability of Saloom’s Estate

The court concluded that there was no material dispute of fact as to whether Saloom had knowledge of the tax liability for Kelley’s estate when he intentionally distributed assets from the estate to himself rendering the estate insolvent.  Saloom was therefore personally liable for the estate tax liability of Kelley’s estate.  Thus, the Kelley estate tax liability was a debt due to the United States from Saloom’s estate

Liability of Rose Individually

The court then found that Rose was personally liable as the fiduciary of Saloom’s estate based upon her failure to pay the Kelley estate tax liability out of the assets of Saloom’s estate prior to distributing the estate assets to herself.  In arriving at this conclusion, the court noted that Rose clearly had actual knowledge of the federal estate tax owed by her father, which she listed as “indebtedness” for “federal tax” on the New Jersey inheritance tax return she filed for Saloom’s estate.  Rose also made several payments toward the debt after Saloom’s death.

Takeaway:

While the result of this case is not entirely surprising on the facts, it serves as a reminder to practitioners that transferee and fiduciary liability can operate in tandem to extend the reach of the federal insolvency statute beyond the fiduciaries and first order transferees of the estate that generates the tax.  After all, Rose was neither a fiduciary nor a direct transferee of Kelley’s estate and yet the court found her to be personally liable for the entire estate tax due.

Upcoming Trust & Estates Events at the BBA – February 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Upcoming Trust & Estates Section Programs at the BBA this month: 

Charitable Giving Basics for Estate Planners Wednesday, February 3, 2021  This program will provide an introduction to charitable planning. We will discuss the reasons for charitable giving, the types of property that can be used to make a charitable gift, and the techniques that can be used to achieve clients’ charitable goals.

Special Drafting Considerations for Elderly Clients Thursday, February 11, 2021  Attorneys Patricia Keane Martin and Kristin Dzialo will discuss special drafting considerations for practitioners to be mindful of when advising elderly clients.  Specifically, they will discuss language concerning end of life decision-making and care, and the importance of counseling clients on the implications of including or excluding certain powers from their documents with an eye towards protecting the client and achieving his or her planning goals. The discussion will be beneficial both for practitioners new to estate planning and for seasoned estate planners.

Speed Networking with Trusts & Estates Attorneys Tuesday, February 16, 2021   This event gives law students and new lawyers a unique opportunity to meet with several Boston-area trusts & estates attorneys in just one evening. Those who attend this event will have the chance to meet all of our guest attorneys in small groups to learn about lawyering in a pandemic, career paths, and legal opportunities available in Boston.

Remote Execution of Estate Plan Documents: Practicalities, Pitfalls and Best Practices  Monday, February 22, 2021 This program will cover the Remote Notarization Act, which was signed into law by MA Governor Charlie Baker on April 27, 2020.  The speaker will review the requirements of remote notarization in MA for estate planning documents and will also host a “mock remote signing” during the program.

Upcoming Events at the BBA – January 2021

By: Jennifer D. Taddeo, Conn Kavanaugh and Rebecca Tunney, Goulston & Storrs, Communications Committee, Trusts and Estates Section

Upcoming Trust & Estates Section Programs at the BBA this month: 

Modifying Irrevocable Trusts: Decanting, Non-Judicial Settlement Agreements and other Trust Amendment Alternatives   Wednesday, January 6, 2021  This program will provide an introduction to various methods for modifying an irrevocable trust, including how and when to consider: (1) Modifications under the Massachusetts Uniform Trust Code, (2) reformations, (3) non-judicial settlement agreements, and (4) decanting.

Breach of Fiduciary Duty Litigation: Superior Court versus Probate & Family Court   Wednesday, January 13, 2021  A panel of probate litigators will share insights for bringing fiduciary duty claims and defending those claims, whether brought in Superior Court or the Probate & Family Court. The panelists will also explore litigation tactics applicable to each court as well as alternate dispute resolution and settlement opportunities.

Trusts & Estates Mid-Year Review    Tuesday, January 19, 2021   An annual event not to be missed, the Trusts & Estates Mid-Year Review covers recent federal and state case law, legislation and tax law matters. This year’s program will touch on:

  • New Developments Committee:  The committee will review recent estate planning and administration cases.
  • Public Policy Committee:  The presentation will include an overview of recent and pending legislation.
  • Tax Law Updates Committee:  The committee will report on important updates regarding the Internal Revenue Code, federal tax law, recent cases, private letter rulings, charitable planning updates, retirement cases and other interesting developments.