IRS Announces October 2017 Applicable Federal Rates and 7520 Rates

Posted in Applicable Federal Rates (AFRs), Income Tax, Internal Revenue Code, IRS

The Internal Revenue Service (IRS) publishes a monthly update to the applicable federal rates (AFRs) and 7520 rates.

Planning professionals and their clients should take note of fluctuations in these rates and be mindful of planning opportunities that come with rate changes.

The AFR is calculated by the IRS under Section 1274(d) of the Internal Revenue Code (the Code) and is used for many purposes. One of its most common applications is to establish the minimum interest rate that can be charged on an intra-family loan without income or gift tax consequences. These “safe harbor rates” are dependent upon two factors: (i) the term of the loan and (ii) the frequency of compounding of interest.

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Greenberg Traurig’s Northern Virginia Office Hosts The Washington Women’s Leadership Initiative September Luncheon

Posted in Event, Firm News

GT’s Northern Virginia Women’s Initiative was proud to sponsor and host the Washington Women’s Leadership Initiative September Luncheon! Highlighting The National Women’s History Museum President and CEO Joan Bradley Wages, the event featured some great discussions.

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Change is on the Horizon for State Estate Tax Laws

Posted in Estate, State Tax

In 2017 there are 18 states, plus the District of Columbia that impose an estate or inheritance tax on decedent residents.  And although state estate and inheritance taxes may provide significant revenue to states that impose them, certain states such as Delaware have decided that the estate tax revenue fails to compare to the loss of revenue caused by wealthy residents moving to more tax-friendly states.  As a result, a number of states are acting to repeal state estate and inheritance tax laws (or weaken them by increasing individual estate tax exemption amounts).

Estate Tax Repeal.

  • Delaware will repeal its estate tax after Dec. 31, 2017.
  • New Jersey will repeal its estate tax after Dec. 31, 2017, but will retain its inheritance tax.
  • Indiana repealed its estate and inheritance tax as of July 1, 2017.

Increased Estate Tax Exemption

  • The District of Columbia will increase its estate tax exemption amount for decedents who pass after Dec. 31, 2017, to conform with the federal estate tax exemption ($5.49 million in 2017)
  • The Maryland estate tax exemption will increase to $4 million in on Jan. 1, 2018, and will equal the federal exemption amount on Jan. 1, 2019, at which time the Maryland estate tax exemption also will become portable between spouses.
  • New York’s estate tax exemption of $5.25 million will increase to equal the federal exemption on Jan. 1, 2019.
  • The estate tax exemptions in Hawaii and Maine already match the federal estate tax exemption and other states such as Minnesota, Rhode Island, and Washington State also are gradually increasing their individual estate tax exemption amounts.

For a resident of a state that is ushering in new estate tax laws, it is important that existing estate planning documents be reviewed by an attorney, as updates to tax-planning provisions may be necessary.

Millennials Need Estate Plans Too

Posted in Estate Planning

Life has changed.  The millennial generation is marrying older and having children later, often due to an increased focus on education, career success, and life experiences before settling down.  As a result, many of the milestones that prompt individuals to engage in estate planning – a spouse, children, accumulation of wealth, poor health – are not occurring until much later in life.  Without an obligation to support a spouse and children, or identify a guardian, there may not appear to be a need for a will, life insurance, or any other estate planning; however, “unattached” millennials may have more of a need than they realize.  Consider a cohabitating partner who would be without any inheritance rights in the absence of a will, parents who would have no access to an incapacitated adult son’s medical information without a written HIPAA authorization or advance medical directive; and what about beloved pets – who will care for them?  The reality is that everyone, even millenials, needs to think about estate planning. 

Incapacity.  An estate plan involves planning for both death and disability. Anyone, regardless of age, should consider that incapacity could occur at anytime and, without the appropriate documents, loved ones would be without access to medical records or control over medical treatment. An advance medical directive (or a similar state-specific document) may designate your wishes in the event of a terminal condition or permanent vegetative state, as well as appoint an individual who will make health care decisions for you if you cannot make them yourself.  Also, without an advance medical directive in place, a non-spouse partner or, if none, a parent or other family member may not be informed, let alone have the ability to make decisions for you, in the event of a medical emergency.

Digital Assets.  In the age of social media, smartphones, cloud storage, and a general push toward paper reduction, digital assets (e.g., email, photos, social media accounts, text messages, and cloud files) are central to millennial life.  Accordingly, special attention needs to be paid to access and management of these assets in the event of death or incapacity.  A growing number of states have passed statutes that pertain to a fiduciary’s ability to access digital assets, which provide for the designation of a person under a durable power attorney or will who may have access to and control of digital assets.  Even without these documents, many account carriers allow you to name a survivor or other individual who may have control over or limited access to your account in the event of death or incapacity.

Pets.  While naming a guardian for a child is a common incentive for many parents to execute an estate plan, it may be less likely for pet owners to consider that an estate plan may designate what happens to a pet when they pass.  With millennials having children later in life, pet ownership among the generation is fairly commonplace, thus plans for care of beloved pets is an important reason to consider an estate plan.  At a minimum, a pet owner should consider designating who will care for or adopt the pet and, depending on state law, funds also may be set aside for care of the pet.

Access to and Distribution of Assets.  For unmarried couples, in the absence of a durable financial power of attorney, a long-term partner may not have any rights to access property of a disabled partner and, in the absence of a will, state intestacy statutes will not protect property rights of partners as they do spouses.  Under a durable financial power of attorney, a designated agent may have access to and control over individually owned assets during the owner’s incapacity which, among other powers, may enable an individual to continue to pay a mortgage or rent on behalf of an incapacitated partner.  By executing a will, a partner, regardless of marital status may be the designated beneficiary of assets, whereas state intestacy status may only give survivorship rights to a spouse by marriage. 

Asset Titling and Beneficiary Designations.  Appropriate asset titling and beneficiary designations also may ensure that unmarried partners have continued rights over property of an incapacitated or deceased partner.  With respect to bank accounts, if titled as joint accounts with rights of survivorship, a partner will have continued access to the account, which also will pass to the survivor by operation of law.  Alternatively, a pay-on-death form or transfer-on-death form (for bank accounts), or beneficiary designation form (for retirement accounts or life insurance) also may be signed which designates how an asset will be paid when the account holder or owner passes.  Some states also permit real property to pass at an owner’s death according to a transfer on death deed recorded during the owner’s lifetime.

A millennial’s lifestyle may not appear to necessitate an estate plan, yet when considering the absence of statutory protection for unmarried couples and the types of assets that millennials often hold, an estate plan is just as (if not more) important than for previous generations.

IRS Announces September 2017 Applicable Federal Rates and 7520 Rates

Posted in Internal Revenue Code, IRS

The Internal Revenue Service (IRS) publishes a monthly update to the applicable federal rates (AFRs) and 7520 rates.

Planning professionals and their clients should take note of fluctuations in these rates and be mindful of planning opportunities that come with rate changes.

The AFR is calculated by the IRS under Section 1274(d) of the Internal Revenue Code (the Code) and is used for many purposes. One of its most common applications is to establish the minimum interest rate that can be charged on an intra-family loan without income or gift tax consequences.  These “safe harbor rates” are dependent upon two factors: (i) the term of the loan and (ii) the frequency of compounding of interest.

For these purposes:

  • Demand notes and notes with a term of three years or less are considered short-term obligations,
  • Notes with a term of more than three years but less than nine years are considered mid-term obligations, and
  • Notes with a term of more than nine years are considered long-term obligations.

The 2017 AFR rates are as follows:

The 7520 rates are used to calculate the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest. They are calculated by the IRS under Code Section 7520 (hence, the name 7520 rates) and are always 120% of the AFR for mid-term obligations with semi-annual compounding.  The 7520 rates for 2017 are as follows:

Rates are typically published by the 20th day of each month and provide planning opportunities for certain estate planning vehicles which are interest rate sensitive.  For example:

  • Lower rates are generally preferable for intra-family loans, grantor retained annuity trusts (GRATs), installment sales to grantor trusts and charitable lead annuity trusts (CLATs).
  • Higher rates are generally preferable for qualified personal residence trusts (QPRTs) and charitable remainder annuity trusts (CRATs).

As rates continue to change, advisors and clients should maintain an open dialogue so that clients can take advantage of any planning opportunities tied to increasing or decreasing rates.

Greenberg Traurig’s Seth Entin Quoted in Accounting Today on Recent IRS Ruling

Posted in Firm News, IRS

Greenberg Traurig Shareholder Seth Entin was recently quoted in Accounting Today for an article on a recent IRS Ruling in the U.S. Tax Court. In July, the U.S. Tax Court rejected a long-standing Internal Revenue Service ruling and held that when a non-U.S. person sells an interest in a partnership or is completely redeemed from a partnership that is engaged in a trade or business in the United States, the non-U.S. seller is, in general, not subject to U.S. federal income tax on the gain from the sale (Grecian Magnesite Mining, Industrial and Shipping Co., SA v. Commissioner, 149 T.C. No. 3). To read the full article, click here.

For more information on this case, please read the GT Alert, “Welcome News for Non-U.S. Persons Investing into U.S. Businesses: U.S. Tax Court Rejects Long-Standing IRS Ruling.”

Greenberg Traurig’s Diana Zeydel Quoted In Forbes

Posted in Estate, Firm News, Government

Greenberg Traurig Shareholder Diana Zeydel, was recently quoted in Forbes where she discusses estate tax valuation rules. The article is in response to President Donald Trump’s executive order to reduce tax regulatory burdens. The U.S. Treasury identified the valuation rules as significant and ripe for review in an interim report and is accepting comments through Thursday, August 7, on whether the rules should be rescinded or modified. A final report to the president is promised by Sunday, Sept. 17. Zeydel provides insights on the proposed rules and what she sees in the market today. To read the full article, click here.

There’s No Time Like the Present

Posted in Estate Planning

Admittedly, estate planning is not an easy topic to bring up with parents and other family members, but dealing with the topic when there are no looming health issues is definitely easier than discussing estate and disability planning after a diagnosis or accident.  You’d probably assume that the parents of a middle aged estate planner would have their affairs in order, with all of the big issues ironed out and documented, but in my case you’d be wrong.  Last summer my mother was diagnosed with stage 4 small cell lung cancer.  When the doctor met with our family to discuss diagnosis and treatment, she gave us a time horizon that seemed unimaginably short and then asked whether my mom had her estate planning documents done.  It was under those circumstances that I started walking my mother through the issues I had discussed with countless clients and I desperately wished I could turn back time and nudge her to think about the tough issues before learning that she was ill.  My mother had draft documents, but had been sitting on them for a year, unable to make decisions and unwilling to discuss the uncomfortable issues.  Nobody wants to ponder their incapacity, physical and mental decline, and mortality.  But I can attest to the fact that those uncomfortable issues felt much more daunting when faced with a terminal illness. Starting these discussions while everyone is happy and healthy can be helpful and lessen the stress of planning during an already difficult time.  There’s no time like the present to engage your family members in dialogue.  A recent Washington Post article discusses the importance of this topic.  Additionally, it is important to work with professionals who are deeply experienced and knowledgeable in estate planning and can help you and your family navigate hard issues and think through alternatives.

https://www.washingtonpost.com/lifestyle/on-parenting/how-to-make-talking-about–and-planning-for–a-parents-end-of-life-care-easier/2017/02/20/0ce0caac-ec99-11e6-9973-c5efb7ccfb0d_story.html?tid=a_inl&utm_term=.182d5f329b3b

IRS Announces August 2017 Applicable Federal Rates and 7520 Rates

Posted in Internal Revenue Code, IRS

The Internal Revenue Service (“IRS”) publishes a monthly update to the applicable federal rates (“AFRs”) and 7520 rates.

Planning professionals and their clients should take note of fluctuations in these rates and be mindful of planning opportunities that come with rate changes.

The AFR is calculated by the IRS under Section 1274(d) of the Internal Revenue Code (the “Code”) and is used for many purposes. One of its most common applications is to establish the minimum interest rate that can be charged on an intra-family loan without income or gift tax consequences.  These “safe harbor rates” are dependent upon two factors: (i) the term of the loan and (ii) the frequency of compounding of interest.

For these purposes:

  • Demand notes and notes with a term of three years or less are considered short-term obligations,
  • Notes with a term of more than three years but less than nine years are considered mid-term obligations, and
  • Notes with a term of more than nine years are considered long-term obligations.

The 2017 AFR rates are as follows:

The 7520 rates are used to calculate the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest. They are calculated by the IRS under Code Section 7520 (hence, the name “7520 rates”) and are always 120% of the AFR for mid-term obligations with semi-annual compounding.  The 7520 rates for 2017 are as follows:

Rates are typically published by the 20th day of each month and provide planning opportunities for certain estate planning vehicles which are interest rate sensitive.  For example:

  • Lower rates are generally preferable for intra-family loans, grantor retained annuity trusts (“GRATs”), installment sales to grantor trusts and charitable lead annuity trusts (“CLATs”).
  • Higher rates are generally preferable for qualified personal residence trusts (“QPRTs”) and charitable remainder annuity trusts (“CRATs”).

As rates continue to change, advisors and clients should maintain an open dialogue so that clients can take advantage of any planning opportunities tied to increasing or decreasing rates.

Maryland Reduces Evidentiary Requirements to Exempt Primary Residence of Domestic Partners from Inheritance Tax

Posted in Death Taxes, Estate

On May 4, 2017, Maryland’s Governor signed into law H.B. No. 1104, effective July 1, 2017, reducing the evidentiary documentation required from domestic partners to evidence the qualification of their joint primary residence for the Maryland inheritance tax exemption.

Maryland law provides that, in a domestic partnership, the inheritance tax will not apply to the surviving domestic partner’s receipt of the predeceasing partner’s interest in the joint primary residence if the property (1) was held as a joint tenancy by both domestic partners at the time of death and (2) passes to or for the use of the surviving domestic partner.

As of July 1, 2017, to evidence a domestic partnership for purposes of qualifying a joint primary residence for Maryland’s inheritance tax exemption, the surviving domestic partner can provide EITHER (1) an affidavit signed under penalty of perjury by the two individuals stating that they established a domestic partnership (DP affidavit) OR (2) any two of the following documents of proof (DP proof documents):

  • Joint liability of the individuals for a mortgage, lease, or loan;
  • Designation of one of the individuals as the primary beneficiary under a life insurance policy on, or a retirement plan of, the other;
  • Designation of one of the individuals as the primary beneficiary of the will of the other;
  • Health care or financial durable power of attorney granted by one individual to the other;
  • Joint ownership or lease by the individuals of a motor vehicle;
  • Joint checking account, joint investments, or a joint credit account;
  • Joint renter’s or homeowner’s insurance policy;
  • Coverage on a health insurance policy;
  • Joint responsibility for child care, such as guardianship or school documents; or
  • Relationship or cohabitation contract.

Before enactment of this new law (and until July 1, 2017), the surviving domestic partner had to provide BOTH the DP Affidavit AND two DP proof documents to qualify for the exemption.

Cites:  See Md. Ann. Code § 6-101(b); Maryland H.B. 1104 (2017).

*Admitted to the practice of law in Florida.

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