Author: Blank Rome LLP

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Estate Planning Estate Tax Exemption Capture Planning Generation-Skipping Transfer (“GST”) Tax Gift Tax

Don’t Wait until Next Year to Make Your Gift!

Sean R. Weissbart —

Sean Weissbart's headshot photo

Any estate planning attorney will tell you that certain years stick out in their professional lives more than others. Here are some recent examples:

  • 2010: The year that estates of billionaires—including, most famously, New York Yankees owner George Steinbrenner—were administered without paying a penny of federal estate tax.
  • 2012: The year the affluent made gifts to capture gift tax exemptions—then, at $5.12 million—before a scheduled reduction to $1 million.
  • 2020: An election year where wealthy individuals feared record-high exemptions scheduled to remain in effect for five more years might abruptly be slashed with little notice.

In the final months of these years, scores of individuals emerged hoping to take advantage of tax benefits before it became too late. To accommodate, members of the trusts and estate community worked around the clock to finalize trust agreements, engage valuation companies, and draft documents transferring stock in closely held companies to irrevocable trusts. But many clients were frustrated when they learned that optimizing these tax benefits usually requires more than writing a check and signing a trust agreement, and can take well more than a month to craft and effectuate.

We expect 2025 to be another year for the estate planning record books. Absent legislative action, the federal estate, gift, and generation-skipping transfer (“GST”) tax exemptions—currently at $13,610,000 per individual—will be reduced by approximately one-half. Undoubtedly, scores of individuals sitting on the sidelines waiting to see if the tax laws will actually change this time, will emerge in the waning months of 2025 asking trusts and estates practitioners to help them capture these tax benefits.

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Estate Planning Gift Tax Trust Administration

Is CCA 202352018 the Death of Irrevocable Trust Decantings?

Kyle G. Durante —

For years, practitioners have freely used irrevocable trust decantings as a means to make various changes to irrevocable trusts without concern of giving rise to gift tax consequences. However, the Internal Revenue Service’s (“IRS”) Chief Counsel Advice Memorandum (CCA 202352018) (the “CCA”) may be the death to irrevocable trust decantings as we know them.

The term “irrevocable trust” is somewhat of a misnomer—there are mechanisms by which irrevocable trusts can be modified in certain respects. Generally, irrevocable trusts can be modified in one of two ways depending on applicable state law: (i) some states, such as New Jersey, Pennsylvania, and Connecticut, permit an irrevocable trust to be modified with the consent of the beneficiaries and the trustee (some states also require the consent of the settlor if he or she is then living), which is typically referred to as a “non-judicial modification;” and (ii) some states, such as New York, Delaware, and Florida, permit an irrevocable trust to be modified by a decanting, which is a process by which an authorized trustee exercises his or her independent discretion to pay over the property of the trust to a new trust that has different terms.

For years, practitioners have been concerned that using a non-judicial modification to make certain changes with the consent of the beneficiaries (such as removing a beneficiary, shifting beneficial interests, or diluting a beneficiary’s interest), may be deemed to be a taxable gift by the beneficiaries. However, this concern was not present with respect to decantings since a decanting is effectuated by the independent act of an authorized trustee, who does not have a beneficial interest in the trust, without the consent of the beneficiaries. That was, until the CCA.

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Asset Protection Estate Administration Estate Planning Family Law Matrimonial Law Spousal Rights

Confronting Cognitive Abilities in Well-Rounded Estate Planning

Alan R. Feigenbaum —

Ask anyone how they would define “trusts and estates law” and the odds are the answer will uniformly focus on the act of making the plan as to who will receive a person’s assets when he or she dies.

What happens, however, when the person who makes the so-called plan loses the cognitive ability not only to plan, but further, to carry on with the tasks of ordinary daily living. When that happens, the person we expect to be planning may be taking actions that unbeknownst to him or her are, in fact, jeopardizing the financial well-being of the estate in question and the ultimate inheritance that he or she intends for his or her loved ones to receive upon his or her death.

A recent decision from the Supreme Court, Suffolk County (Acting Justice Chris Ann Kelley), In the Matter of the Application of T.K., 2024 N.Y. Slip Op. 50045 (Suffolk Cnty. Sup. Ct. 2024), illustrates what can happen when the person whom we expect to make the estate plan is no longer competent to protect the very assets contemplated for disposition under that plan.

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Capital Gains Tax Estate Administration Estate Planning Estate Tax Income Tax

Avoiding Zero Basis for Inherited Assets

James R. O’Neill —

Practitioners involved with the administration of trusts and estates of a decedent may be confronted with the issue of dealing with one or more assets of a decedent discovered after the administration is believed to have been concluded. Consideration of timely reporting of those assets for estate tax purposes may be essential to avoiding assignment of a zero basis to such assets.[1]

The recipient of property from a decedent generally takes a basis equal to the fair market value of the property at the time of the decedent’s death (or the alternate valuation date (i.e., six-months after the decedent’s date of death)) pursuant to Section 1014(a) of the Internal Revenue Code of 1986, as amended (the “IRC”). However, under Proposed Regulations issued in 2016 addressing the so-called consistent basis reporting rules, the basis of inherited property may unexpectedly be determined to be zero.

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Estate Planning Estate Tax Exemption Capture Planning Generation-Skipping Transfer (“GST”) Tax Gift Tax

Take Note: Significant 2024 Gift/Estate Tax Exemption Inflation Increases

Kyle G. Durante —

The New Year brought inflation adjustments to the federal and some states’ gift/estate tax exemption amounts, thereby increasing the amount individuals can gift during life and at death free of federal and state gift and estate tax. Given the significant 2024 inflation adjustments, particularly with respect to the federal gift/estate and generation-skipping transfer (“GST”) tax exemption amounts, the New Year presents a prime estate planning opportunity not only for those individuals who have not previously engaged in significant gifting, but also for those individuals who previously made gifts to capture their exemptions and who now have additional exemption available.

The Federal Gift, Estate, and GST Tax Exemption Amounts

Under current federal law, the federal gift/estate tax exemption amount (i.e., the basic exclusion amount) is an amount equal to $10,000,000, adjusted for inflation since 2017. In 2023, the federal gift/estate tax exemption amount was $12,920,000, which increased to $13,610,000 with the 2024 inflation adjustment (a $690,000 increase).

In addition, the federal generation-skipping transfer (“GST”) tax exemption amount is an amount that mirrors the basic exclusion amount. Accordingly, the federal GST tax exemption amount also increased from $12,920,000 to $13,610,000 as of January 1, 2024.

These amounts will continue to increase for inflation each year until December 31, 2025. Under current federal law, the increase in the federal basic exclusion amount is scheduled to automatically sunset on December 31, 2025, from $10,000,000 plus an inflation adjustment, to $5,000,000 plus an inflation adjustment. As such, on January 1, 2026, the exemption amounts are scheduled to be automatically slashed by approximately one-half.

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Estate Planning

How to Avoid Cutting the Painting in Half

Sean R. Weissbart —

Many parents wish to bequeath their assets to their children in equal shares, yet they don’t consider that a plethora of valuable assets would become worthless if equally divided. How do you dispose of a painting, a family heirloom, or a diamond ring when a parent with multiple children owns one of each item? Estate planning documents must be drafted to avoid beneficiaries fighting about who should be the rightful owner of such assets.

The Bible, unsurprisingly, tells of one of the most famous feuds between two people over something that cannot be divided. In the Book of Kings, two women argued before King Solomon that the same newborn son belonged to her. To resolve the dispute, the king declared, “[c]ut the living child in two and give half to one and half to the other.” 1 Kings 3:25.

In fact, the king’s horrific order constituted a test to determine the identity of the baby’s real mother.[*] However, in our modern world without monarchs and with a backlogged judicial system, legal documents must provide clarity regarding the distribution of assets that cannot be equally divided.

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Estate Administration Estate Planning Litigation Probate Surrogate’s Court Practice

No One Can Contest a New York Will If It Includes an In Terrorem Clause. Right? Right?!?!?!!?

Sara K. Osinski —

Unfortunately, including an in terrorem (“no contest”) clause in your Will does not make it impenetrable under New York law.

Although New York law recognizes in terrorem clauses as valid,[i] they are narrowly construed by the courts. An in terrorem clause in a Will threatens that if a beneficiary challenges the Will, such beneficiary (and, typically, all of his or her descendants) will be treated as if he or she predeceased the testator, thereby disinheriting the beneficiary. The purpose of an in terrorem clause is to discourage litigation and ensure that the testator’s intentions are carried out.

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Estate Planning Estate Tax Gift Tax

Increasing the Available Gift and Estate Tax Exemption for a Surviving Spouse

James R. O’Neill —

In planning for the estate of a surviving spouse, the availability of the unused gift and estate tax exemption of his or her deceased spouse can be important, and particularly so with the impending reduction of the exemption. The federal gift and estate tax exemption, which was doubled pursuant to the 2017 Tax Cut and Jobs Act and presently stands at $12,920,000, is scheduled to be automatically reduced by approximately one-half on January 1, 2026.[1] The exemption is portable between spouses allowing for use by the surviving spouse of any unused exemption of the deceased spouse. This portability arises under IRC Section 2010(c)(5)(A), which provides that a deceased spousal unused exclusion (“DSUE”) amount becomes available for use with a surviving spouse’s subsequent transfers during life and at death, but only if the executor of the first-to-die’s estate timely files Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (“Form 706”). The due date of a Form 706 required to elect portability is the date which is nine months after the decedent’s death, or the last day of the period covered by an extension, which may be obtained for six additional months. The so-called DSUE election is automatically made by timely filing a Form 706 unless the executor affirmatively opts out as permitted on the return. The portability election, once made, becomes irrevocable once the due date of the Form 706, including extensions granted, has expired.

An executor may file a Form 706 for the estate of any U.S. citizen or resident, but the executor is only required to file a Form 706 under IRC Section 6018(a) if the value of the gross estate, plus adjusted taxable gifts, exceeds the exemption amount for the year of death. Given the effort and expense of preparing a Form 706 when not otherwise required, particularly when the assets of the surviving spouse are not expected to exceed the current exemption amount, a Form 706 is often not filed when the first spouse dies, resulting in the deceased spouse’s unused exemption being unavailable to the surviving spouse. With the scheduled reduction of the exemption after 2025, it may, in many cases, be important to recover that unused exemption of the deceased spouse for use by the surviving spouse.

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Asset Protection Estate Planning Matrimonial Law

To Trust, or Not to Trust: That Is the Question

Sean R. Weissbart —

Mom and Dad, a lovely couple in their early 50s, meet with me to discuss their estate planning. Mom shares, “our two children—ages 23 and 25—are special and productive. One just graduated law school and the other finishes medical school next spring.” Dad jumps in, “when we die, split all of our asset equally among our kids.”

And so, I ask, “would you like them to receive their inheritance outright or in trust?” Mom answers nicely, but firmly, “like I said, our children are fantastic. We want to give them full access to their inheritance. No interest in tying it up in trusts.” To which I respond, “got it. But just to confirm—are you aware trusts can protect assets from taxes, divorce, and creditors?” Their interest piques. Dad says, “we hadn’t thought of that. Please tell us more.”

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Capital Gains Tax Estate Planning Income Tax

IRS Disallows Step-Up in Tax Cost Basis for Assets Held by an Irrevocable Grantor Trust

Kyle G. Durante —

Under current law, assets acquired from a decedent receive an adjustment in cost basis to fair market value, thereby potentially eliminating significant unrealized gain. Although Congress has and likely will use this tax benefit as a pawn in future tax legislation, under current law, this benefit remains available to taxpayers. With respect to assets held in trusts excluded from estate tax, the IRS recently released guidance shutting the door on the application of this generous tax treatment to such assets.

Section 1014(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”) provides that “. . . the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be (1) the fair market value of the property at the date of the decedent’s death . . . .” But does this Code section apply to assets that are held in an irrevocable trust that is not subject to estate tax upon the settlor or donor’s death, when the settlor of the trust is treated as the owner of the assets for income tax purposes during his or her lifetime?

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