Heckerling Institute

More Estate & Tax Law Changes Brewing

My law partners and I recently attended the Heckerling Estate Planning Institute conducted by the University of Miami Law School. This is the nation’s premier estate planning and tax conference attended by more than 3,000 professionals from across the country.

I’ve attended this Institute for 30 years, as it provides the most up to date expert lectures on developments in the estate planning field. It’s a week-long conference and is akin to finishing an entire year of post-graduate law school training in that week.

I’ll tell you that my brain still hurts!

What I can tell you is that there are many new developments in the tax law, from how inherited IRA accounts must be withdrawn, to whether charitable gifts are entitled to a full deduction when they’re distributed from a family partnership. What I intend to do over the coming weeks is to break down several of the topics into layman’s terms so my readers will understand how these rules will affect their plans.

The current administration still wants to abolish some strategies that estate planners have used for decades, such as those involving intentionally defective grantor trusts (IDGTs). With IDGTs, planners manipulate the differences between the income tax laws and the transfer tax (gift, estate and generation skipping transfer) laws to achieve significant savings.

Since Congress wasn’t able to pass sweeping change last year, many of us in the field thought that it wouldn’t happen. But it still might. What does this mean for those with wealth? To me it means that if you have significant wealth you shouldn’t sit idly by. It might be time to take action before the laws change.

We do know, for example, that without any further legislation passed by Congress and signed into law by the President, the current $12,06 million gift/estate exemption will fall to around $6.5 million on January 1, 2026. That date may seem far off to you now, but consider that it seems like only yesterday the SECURE Act changed inherited IRA planning for all of us. That change was back in 2017! Time flies.

Speaking of the SECURE Act – remember when all of us thought that although inherited IRAs must be totally distributed within 10 years of the death of the account owner, but that no distributions were necessary in any given year up until year 10? Within the past several weeks the IRS issued Treasury Regulations mandating annual distributions every year until year 10!

How much will that annual distribution be? Well, that depends on many variables, including whether the account owner died before age 72, the age of the beneficiary, and whether the beneficial interest is held in a qualifying trust, among other things. I’m working on a whitepaper now that my clients will receive outlining these complicated rules, and how to best plan for them to minimize the income taxes Uncle Sam charges. I’ll examine these laws in this column as well, so stay tuned.

Institute speakers discussed how state income tax laws will affect the beneficiaries of our estates. While Florida doesn’t impose state-level income tax, many of our beneficiaries reside in states that do. How to minimize those taxes for our loved ones is something that I’ll write about as well.

For those with private foundations, there were many interesting cases that came out over the past several years involving self-dealing. Did you know, for example, that if you own commercial space, and rent it to a private foundation you created, even if you rent it at a discount, that lease is considered illegal self-dealing? Such an arrangement could result in your foundation losing tax exempt status, meaning deductions are disallowed along with a host of other legal and tax problems.

Yet another topic reviewed centered on fixing irrevocable trusts that are no longer relevant. There are many legal and tax issues when decanting an old trust into a new one, or modifying an old trust through nonjudicial reformations.

The Institute gave me a lot to write about, and I plan to share it all with you in the coming weeks and months. So stay tuned!

©2022 Craig R. Hersch of The Sheppard Law Firm. Learn more at floridaestateplanning.com

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