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Unofficial Inflation Adjustments for 2021

Posted on September 11, 2020 by Daniel EvansSeptember 11, 2020

With the release of the Chained Consumer Price Index (C-CPI-U) for August 2020, it’s possible to calculate various inflation adjustments for 2021. The following are the significant federal estate planning numbers, with the numbers for 2020 shown in parentheses:

The base applicable exclusion amount (and generation-skipping tax exemption) will be $11,700,000 (was $11,580,000 for 2020).
The annual gift tax exclusion will be $15,000 (unchanged).
The annual gift tax exclusion for a non-citizen spouse will be $159,000 (was $157,000).
The “2 percent” amount for purposes of section 6166 will be $1,590,000 (was $1,570,000).
The limitation on the special use valuation reduction under section 2032A will be $1,190,000 (was $1,180,000).
The top (37%) income tax bracket for estates and trusts will begin at $13,050 (was $12,950).
The alternative minimum tax exemption for estates and trusts will be $25,700 (was $25,400), and the phaseout of the exemption will start at $85,650 (was $84,800).

The Internal Revenue Service will publish the official inflation adjustments in a Revenue Procedure in 4-8 weeks.

Signing Forms 706 and 709 Electronically

Posted on September 10, 2020 by Daniel EvansSeptember 10, 2020

As a further response to COVID-19, and in order to protect Internal Revenue Service employees, as well as taxpayers and their representatives, by minimizing the need for in-person contact, the IRS has added federal estate and gift tax returns, Forms 706 and 709, to a list of forms that can be signed electronically even though they can’t be filed electronically. IR-2020-206 (9/10/2020).

According to the 8/28/2020 memorandum first allowing electronic signatures for certain forms that must be filed in paper form, “Electronic and digital signatures appear in many forms when printed and may be created by many different technologies. No specific technology is required for this purpose during this temporary deviation.”

The deviation applies to forms filed on or after August 28, 2020, until December 31, 2020.

New Rule for Small Estate Petition

Posted on August 28, 2020 by Daniel EvansAugust 28, 2020

The Supreme Court has adopted a new Pa.O.C. Rule 5.50 governing the form and contents of petitions to settle small estates in accordance with 20 Pa.C.S. § 3102, the new rule to be effective on October 1, 2020. A note has also been added to Rule 2.4 with a cross-reference to the new Rule 5.50. “Order Amending the Note to Rule 2.4 and Adopting Rule 5.50 of the Pennsylvania Orphans’ Court Rules; No. 847 Supreme Court Rules Doc.” (8/18/2020), 50 Pa.B. 4387 (8/29/2020).

The proposed version of this new rule was published as “Proposed Adoption of Pa. O.C. Rule 5.50,” 49 Pa.B. 444 (2/2/2019). In a previous commentary, “Proposed Rule for Small Estate Petitions and Rights of Creditors,” it was suggested that the proposed version of Rule 5.50(b)(2) was problematic, because it required the disclosure of all assets of the estate, and then added that “If it appears that all creditors cannot be paid in full, then include all other assets in which the decedent had an interest as a joint tenant with right of survivorship, together with the value of each such asset and decedent’s fractional interest therein.” The rule that was adopted deleted that sentence, but added a clause to exclude from disclosure “property distributable under 20 Pa.C.S. § 3101.”

The exclusion of property distributable under § 3101 from the small estate petition is curious, because that section is not supposed to be determinative of the rights of beneficiaries of the estate. For example, § 3101(a), which allows unpaid wages not exceeding $10,000 to be paid directly to family members, states that “Any person to whom payment is made shall be answerable therefor to anyone prejudiced by an improper distribution.” Similar provisions appear in subsections (b), (c), and (d). A small estate petition would seem to be a proper vehicle for disclosing distributions under § 3101 and allowing interested parties to object to any improper distribution. At the very least, a petitioner should be able to report that a beneficiary has received funds in accordance with § 3101 and ask that the beneficiary’s share of the assets to be distributed under the petition should be adjusted accordingly. And yet the Supreme Court has apparently excluded any consideration of those issues from the small estate petition.

New Record Low Federal Rates for September

Posted on August 17, 2020 by Daniel EvansAugust 17, 2020

The Internal Revenue Service has announced federal rates for the month of September under §§ 1274 and 7520 of the Internal Revenue Code (“IRC”) that will be the lowest rates since the IRS began publishing those rates in 1984.

The §7520 rate, which is used to value life estate, annuities, and remainders, will remain at 0.4%, which is the record low first set in August.
The federal rates under §1274, which defines the market rates of interest for purposes of intra-family loans under §7872 (among other things), will be the lowest in history. The September short-term rate of 0.14% will be lower that the 0.16% that applied in October of 2011. The mid-term rate of 0.35% will be lower than the 0.41% that applied in August. And the long-term rate of 1.00% will be lower than the 1.01% that applied in June.

For information on estate planning techniques to take advantage of these low rates, see “Low-Interest Estate Planning Strategies” (subscription required), which contains links to the Webcalculators overviews of long-term GRATs and interest-only term notes (no subscription required for those overviews) and sample calculations from Webcalculators.

New Actuarial Tables Coming

Posted on August 17, 2020 by Daniel EvansAugust 17, 2020

On August 7, the Centers for Decease Control and Prevention published mortality tables based on the 2010 census. “U.S. Decennial Life Tables for 2009-2011, United States Life Tables,” National Vital Statistics Reports, Vol. 69, No. 8 (8/7/2020). Table 1 of those life tables is the mortality table that the Internal Revenue Service will now be using to develop new actuarial tables under I.R.C. § 7520.

I.R.C. § 7520 specifies how to value life estates, annuities, and remainders, and it requires the Secretary of the Treasury to publish new actuarial tables every 10 years, based on the most recent mortality information then available. The first actuarial tables under § 7520 were published effective as of May 1, 1989, and were based on the 1980 census. The IRS has published new tables every ten years since then, but was unable to publish new tables in 2019 because the Centers for Disease Control (CDC) had been unable to finish compiling the mortality data from the 2010 census.

Now that the necessary mortality table has been completed, the IRS will begin preparing new actuarial tables, a process that could take six to eight weeks. It is therefore possible that new tables will be published (and effective) by October 1, although the IRS has in the past allowed a two month transition period during which taxpayers could elect to use the previous tables.

The new mortality table shows a significant increase in life expectancy, as much as 1.8 years for the very young, although there appears to be no increase in life expectancy for those 89 or older. For those younger than 89, the new tables will therefore result in smaller charitable remainders for charitable remainder unitrusts, charitable remainder annuity trusts, and charitable gifts of remainder interests in farms. There will be larger values for life estates, and for charitable lead trusts that are measured by lives and not terms of years. Longer life expectancies will also allow smaller payments for both private annuities and self-cancelling installment notes.

Overview: Interest-Only Term Note

Posted on August 17, 2020 by Daniel EvansAugust 17, 2020

The article “Low-Interest Estate Planning Strategies” described several estate planning strategies that should be considered now that interest rates have reached record lows. One of the strategies that is described in the article is an interest-only term note.

A new calculator has been added to Webcalculators to illustrate the benefits of that kind of loan, which can be used to a exclude significant portion of the value of the note from the lender’s gross estate. Here is a sample of the output from the calculator, and the overview of the calculator is below:

Reporting Excess Deductions on Termination of an Estate or Trust

Posted on July 30, 2020 by Daniel EvansJuly 30, 2020

The Internal Revenue Service has published a new webpage “Reporting Excess Deductions on Termination of an Estate or Trust on Forms 1040, 1040-SR, and 1040-NR for Tax Year 2018 and Tax Year 2019.”

These are instructions telling beneficiaries of estates and trusts how to report excess deductions on their personal income tax returns. As of 7/30/2020, it read as follows:

“Under Proposed Regulations 113295-18 (PDF), an excess deduction on termination of an estate or trust allowed in arriving at adjusted gross income (Internal Revenue Code (IRC) section 67(e) expenses) is reported as an adjustment to income on Forms 1040, 1040-SR, and 1040-NR; non-miscellaneous itemized deductions are reported, as applicable, on Schedule A (Form 1040 or 1040-SR) or Schedule A (Form 1040-NR); and miscellaneous itemized deductions are not deductible. Taxpayers may rely on the proposed regulations for tax years of beneficiaries beginning after 2017 and before the final regulations are published.

“For tax year 2019, an excess deduction for IRC section 67(e) expenses is reported as a write-in on Schedule 1 (Form 1040 or 1040-SR), Part II, line 22, or Form 1040-NR, line 34. On the dotted line next to line 22 or line 34 (depending on which form is filed), enter the amount of the adjustment and identify it using the code “ED67(e)”. Include the amount of the adjustment in the total amount reported on line 22 or line 34.

“For tax year 2018, an excess deduction for IRC section 67(e) expenses is reported as a write-in on Schedule 1 (Form 1040), line 36, or Form 1040-NR, line 34. On the dotted line next to line 36 or line 34, (depending on which form is filed), enter the amount of the adjustment and identify it using the code “ED67(e)”. Include the amount of the adjustment in the total amount reported on line 36 or line 34.”

New Act on Digital Assets

Posted on July 27, 2020 by Daniel EvansJuly 27, 2020

S.B. 320 was signed into law by Governor Wolf on July 23, 2020, becoming Act 72 of 2020.

S.B. 320 enacts the Revised Uniform Fiduciary Access to Digital Assets Act as Chapter 39 of the Probate, Estates and Fiduciaries Code, 20 Pa.C.S. Ch. 39, generally effective in 180 days.

The enactment of Chapter 39 will affect the preparation of wills, powers of attorney, and perhaps even trust documents, as explained in the article “Fiduciary Access to Digital Assets.”

Fiduciary Access to Digital Assets

Posted on July 27, 2020 by Daniel EvansAugust 15, 2023

Senate Bill 320, which enacts the Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”) as Chapter 39 of the Probate, Estates and Fiduciaries Code, 20 Pa.C.S. Ch. 39, was signed into law by Governor Wolf on July 23, 2020,…

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Assignment of Municipal Pension in Divorce

Posted on July 24, 2020 by Daniel EvansJuly 24, 2020

The anti-alienation provisions that protect municipal pensions from attachment only apply while those funds are in the possession of the pension fund administrator, and so a post-nuptial agreement in which a spouse agreed to waive her rights to her husband’s pension, and to transfer those benefits after receiving them from the administrator, was legally enforceable. Estate of Michael A. Benyo v. Breidenbach, ___ Pa. ___, ___ A.3d ___, No. 90 MAP 2019 (Pa. 7/21/2020).