This is an overview/explanation from Webcalculators:
As previously announced, I’ve created an on-line service that provides specialized calculators for estate and tax planning issues. Although the service is still known as Webcalculators, the domain has been changed to wcalcs.com. Previous links and references to the service on this website have been updated to reflect that change.
Currently, the following calculators are available:
- Benefit/Cost of Gifts of Appreciating Property
- Benefit/Cost of Grantor Trusts
- Gift Tax on Net-Net Gifts
- Income Tax on Estates and Trusts
- Income Tax Changes for Individuals in 2018
- Estate Tax Savings through Credit Exclusion Gifts
- Required Minimum Distributions
- Annuity Factors
- Income (Life Estate) and Remainder Factors
- Value of Income and ‘5 & 5’ Power
- Pennsylvania Inheritance Tax
- Interest on Federal Taxes
- Interest on Pennsylvania Taxes
For additional information about these calculators, see Webcalculators at http://wcalcs.com.
Delaware County has updated its public access rules to reflect amendments to the statewide public access policy. “Local Rule of Judicial Administration; Case Records Public Access Policy of the Unified Judicial System of Pennsylvania; Civil Doc. No. 17-5120; Criminal Doc. No. MD-1545-17” (Delaware Co. 6/26/2018), 48 Pa.B. 4234 (7/21/2018).
In Notice 2018-61, 2018-31 I.R.B. 278 (7/30/2018), the Internal Revenue Service has confirmed that administration expenses of trusts and estates that were fully deductible before the enactment of the 2017 tax act are still fully deductible for income tax purposes, notwithstanding the elimination of “miscellaneous itemized deductions” under the 2017 tax act.
To understand the change made by the 2017 tax act, P.L. 115-97, commonly known as the Tax Cuts and Jobs Act of 2017 (although that name was deleted from the bill), and the issue addressed by Notice 2018-61, it necessary first to understand how administration expenses were treated under prior law.
Prior Law
Under section 67 of the Internal Revenue Code, “miscellaneous itemized deductions” are allowed only to the extent that the total of the deductions exceed 2% of adjusted gross income.
Most expenses of administering an estate or trust are deductible by reason of I.R.C. section 212, which allows deductions for amounts paid or incurred “for the production or collection of income” and “for the management, conservation, or maintenance of property held for the production of income,” as well as expenses “in connection with the determination, collection, or refund of any tax,” and deductions under section 212 are generally within the definition of “miscellaneous itemized deductions” in section 67(b). However, there is a special rule for estates and trusts, because section 67(e) states that the deductions allowed in determining the adjusted gross income of an estate or trust include “deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate.”
So, under prior law the administration expenses of an estate or trust had to be divided into two different categories:
- Expenses which would not have been incurred if the property were not held in the estate or trust (such as fiduciary fees and tax return preparation fees) were fully deductible; and
- Expenses which would have been incurred whether or not the property were held in the estate or trust (such as investment advisory expenses) were deductible only to the extent that they exceeded 2% of adjusted gross income.
2017 Tax Act
The 2017 tax act eliminated any income tax deduction for “miscellaneous itemized deductions” for the years 2018 through 2025. Commentators and practitioners generally agreed that the second category of expenses (expenses that were subject to the 2% floor) are no longer deductible, but there has some uncertainty about whether the first category of expenses were still deductible. According to Notice 2018-61, they are still fully deductible.
According to Notice 2018-61, the section 212 deductions of an estate or trust are not miscellaneous itemized deductions because they are not “itemized deductions.” Itemized deductions are defined by I.R.C. section 63(d) as deductions other than those used to determine “adjusted gross income.” Because section 67(e) provides a definition of “adjusted gross income” that allows deductions for expenses in the first category, and so those deductions are used to determine adjusted gross income, they are not within the definition of “itemized deductions” in section 63(d) and are therefore not miscellaneous itemized deductions.
Excess Deductions on Termination
Although Notice 2018-61 allows estates and trusts to continue to take deductions for administration expenses that would not have been incurred if the property were not held in the estate or trust (the first category of expenses, not subject to the 2% floor), the notice does not say whether beneficiaries may take deductions for those expenses when an estate or trust terminates.
When an estate or trust has deductions in excess of income in the final year of the estate or trust, the excess deductions are allowed as deductions for the beneficiaries under I.R.C. section 642(h). For the beneficiaries, section 642(h) deductions are miscellaneous itemized deductions that are no longer deductible. The issue presented by Notice 2018-61 is whether the character of the administration expenses as deductible for the estate or trust under section 67(e) might be preserved for the beneficiaries, so that the beneficiaries can continue to claim the same expenses that were allowable to the estate or trust.
The notice says that the Treasury and the IRS are studying the issue and intend to propose regulations, and comments from practitioners on the issue are requested. (The addresses for submitting comments are in the notice.)
As part of my Webcalculators project, I have been creating not only on-line calculators to illustrate different estate planning techniques or to solve estate and trust administration problems, but I have been writing “overviews” which are intended to serve as non-technical explanations of the purpose of the technique or calculation.
I intend to began creating cross-links so that these overviews on the Webcalculators site are also available here at Evans Estate Law Resources, and the first cross-link has been posted today, on the benefits (or costs) of making lifetime gifts of appreciating property. Additional cross-links will be added in the near future.
These cross-links will be a new resource type, “Overview,” so that they can be listed or viewed through the “Resource Types” menu tab at the top of the screen.
This is an overview/explanation from Webcalculators:
An email I wrote to the New York Times about possible amendments to the U.S. Constitution was published on Sunday. My nonpartisan (I think) suggestions were as follows:
To the Editor:
Because of controversies over judicial (and other) appointments, I would propose two amendments to the Constitution:
1. Each seat on the Supreme Court would be limited to a term of 18 years, with terms staggered to expire every two years. That would allow every president to appoint at least two justices.
2. Every presidential nominee would be considered to be confirmed if the Senate does not affirm or reject the nomination within 120 days. The recess appointments clause should also be changed so that appointments are effective only for the recess and 120 days after the Senate returns to session.
DANIEL B. EVANS, GLENSIDE, PA.
When the principal and agent shared a home that was in the joint names of the principal and agent, and had agreed to divide living and maintenance expenses, the agent was not surcharged for installing new windows when there was no evidence the principal did not agree to pay for the improvements, but was surcharged for unexplained payments from petty cash, for monies paid by check to the agent without explanation, for half of the real estate taxes and homeowner’s insurance which the agent failed to pay, for dividend checks and Agency on Aging checks that were cashed but not deposited into the principal’s account, for half of the cost of a roof replacement, and for missing rent payments received. The agent was only entitled to half of the insurance proceeds for a fire that destroyed the jointly owned property before the decedent’s death. Miscella Estate (No. 2), 7 Fid.Rep.3d 206 (Monroe Co. O.C. 2017), aff’d, 1905 EDA 2017 (Pa. Super. 6/27/2018) (non-precedential).
In affirming, the Superior Court specifically affirmed only the division of the insurance proceeds. The other issue raised on appeal was found not to have been raised before the Orphans’ Court and was therefore waived.