It can be difficult to incorporate retirement accounts, life insurance policies and other non-probate assets into a client’s larger estate planning goals because such assets fall outside the control of a will or trust. Working with clients to keep non-probate assets within the confines of a broader estate plan is extremely important to achieving a client’s estate planning objectives. Doing so requires regularly updating beneficiary designations.
With the recent passage of the Uniform Trust Decanting Act in Colorado, estate planners and their clients are reviewing whether irrevocable trusts should be modified, whether by making changes to administrative provisions or seeking court-approval for changes to beneficial interests.
The recent release of IRS Private Letter Rulings 201702005 and 201702006 serve as an important reminder that modification, decanting, or court-approved changes to a trust may have adverse income, estate, generation-skipping transfer or gift tax consequences.
After author/novelist Tom Clancy died in 2013, the terms of his Will and a Codicil were disputed by his current wife and adult children from a previous marriage. The dispute related to the Will’s tax apportionment provision, a “boilerplate” provision found in most wills. A tax apportionment provision tells the personal representative how taxes owed at death will be paid. A decedent’s estate will owe federal estate or generation-skipping transfer tax only if it has a taxable estate over the applicable exclusion amount ($5,490,000 in 2017, plus a deceased spouse’s unused exclusion, if applicable). Assuming tax is owed, the tax apportionment provision will determine who (or what property) will pay the tax.
Both the Trump Administration and the newly seated 114th Congress look serious about a major tax overhaul in 2017. Given Republican control of both houses of Congress and the White House, timing looks good for a significant overhaul of the U.S. tax code.
Given the current IRS rules, most individuals today will not face a federal estate tax. In 2017, an individual pays the federal estate tax is he or she has assets over $5,490,000. With “portability returns,” a married couple can avoid paying estate tax with assets up to $10,980,000. And unlike many East Coast states, Colorado does not have a state estate tax.