What’s New in Trusts & Estates

By: Suzanne R Othman

As we begin the year and a new administration, estate and tax planners are once again faced with (in many cases quite literally) the multi-million dollar question – what do you predict will happen with the estate tax repeal and tax code?

As a multitude of attorneys, accountants, financial planners and the like will profess the need for a crystal ball, in favor of placing bets on the roulette table with guesses about the results of the Internal Revenue Code, there are some known facts currently in existence. As for the uncertainty – planning for flexibility, considering income tax consequences, and the opportunity to leave a legacy – is a pretty solid gamble..

Estate Tax & Gift Tax Exemption Adjusted For Inflation For 2017

  • $5,490,000 federal estate tax exemption (increased from $5,450,000 in 2016) and a 40% top federal estate tax rate.
  • $5,490,000 Generation Skipping Transfer (GST) tax exemption (increased from $5,450,000 in 2016) and a 40% top federal GST tax rate.
  • $5,490,000 lifetime gift tax exemption (increased from $5,450,000 in 2016) and a 40% top federal gift tax rate.
  • $14,000 annual gift tax exclusion (remains the same as 2016)
  • $4,000,000 Illinois state estate tax exemption (remains the same as 2016) rate varies (effective rate up to 28.5%)

To review all inflation-adjusted numbers for federal tax purposes for 2017, see IRS Rev. Proc. 2016-55.

Form 8971 and Schedule(s) A. Information Regarding Beneficiaries Acquiring Property From a Decedent –  Cost Basis Reporting

Section 6035(a) of the Internal Revenue Code of 1986, as amended (IRC) provides that the Executor of an Estate which filed a federal estate tax return after July 1, 2015, must provide the beneficiaries of the estate with a form specifying the tax basis of property that the beneficiaries have received or may receive from the estate, excepting the following:

  • Assets for which Reporting is Not Required
    • Cash
    • Income in Respect of a Decedent (IRD)
    • Tangible personal property for which an appraisal is not required under §20.2013-6(b) (which appears to be any items under 3k)
    • Property sold, exchanged or otherwise disposed of (and, therefore, not distributed to a beneficiary) by the estate in a transaction in which capital gain or loss is recognized

In 2015 Congress also passed new IRC Section 1014(f) that generally requires beneficiaries to use consistency between the basis of assets received by reason of a death and the value as finally determined for federal estate tax purposes. This change was introduced to curb the perceived abuse and “loophole” of the executor and beneficiaries reporting differing amounts.

To carry out Section 1014(f) the IRS (after several changes and a few postponements of the filing deadline) issued a final Form 8971 and instructions in October of 2016. The Form requires a schedule for each beneficiary, which lists the assets received by the beneficiary, and the estate tax value of those assets. The purpose is to provide beneficiaries with documentation that allows them to calculate basis of the received assets and gain or loss on a subsequent sale of the assets received.

“Form 8971 (including all attached Schedule(s) A) must be filed with the IRS and only the Schedule A is to be provided to the beneficiary listed on that Schedule A, no later than the earlier of: The date that is 30 days after the date on which Form 706 or Form 706-NA is required to be filed (including extensions) with the IRS; or The date that is 30 days after the date Form 706 or Form 706-NA is filed with the IRS. If the first Form 706 or Form 706-NA is filed both after the form’s due date (including extensions) and after July 2015, the Form 8971 and Schedule(s) A are due 30 days after the filing date.” For complete instructions see Vice President & Director of Marketing

Transcripts in Lieu of Estate Tax Closing Letters

The IRS has stated that for all federal estate tax returns filed on or after June 1, 2015, closing letters would no longer be automatically issued. However, closing letters can be requested by telephone or in writing four months after the return was filed. In lieu of requesting an estate tax closing letter, account transcripts are now available online to tax professionals. Notice 2017-12 provides further guidance announcing that an account transcript notation bearing transaction code “421” can serve as a functional equivalent confirming that the IRS concluded its review of a filed estate tax return, and has accepted the return as filed (or after agreed adjustment by the IRS and estate) and closed examination of the tax return.

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Will the new administration bring significant change in estate and gift tax reform?

Again, there are a plethora of theories out there. What we do know is with the new administration and leadership shift in Congress, the uncertainty and predictions for significant estate and gift tax reform, are real and relevant to many aspects of personalized planning. President Trump and congressional Republicans have indicated their intention to repeal the estate tax, however, even with majority control, there is no certainty as to the results. Recall in 2001, similar political alignment resulted in a ten-year phased-in repeal; which repeal was ultimately altered in 2011. Unforeseen (or even inconsistent) budgetary constraints make significant long-term tax reduction difficult to enact. For estate planning purposes — legacy planning, income tax considerations, and flexibility are significant. This focus has been and will likely continue to be stressed for many years.

Source: The National Federation of Paralegal Associations, Inc., www.paralegals.org. (c) (2017). Reprinted with permission.

* This article is not to be used or construed as legal advice

About the Author

Screen Shot 2017-04-05 at 9.33.22 PMSuzanne R. Othman is a member of Dentons’ Trusts, Estates and Wealth Preservation practice in the Chicago office. Suzanne started her career as a Paralegal in 1998. Suzanne graduated from the ABA approved, Paralegal Studies Program at William Rainey Harper College, with Dean’s High Honors for two consecutive years. She recently earned Illinois Accredited Paralegal (ILAP) Credentials through the Illinois Paralegal Association. Memberships and Afiliations: National Federation of Paralegal Associations, Illinois Paralegal Association,: Illinois institute for Paralegal Education (IPE), Chicago Council on Global Affairs.

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