Estate Planning Tax Changes: What To Expect Under New Administration

Key Takeaways

Estate planning tax changes anticipate:

  • Exemption Reductions: Potential lowering of gift and estate tax exemptions.
  • Capital Gains Adjustments: Possible changes to capital gains tax strategies.
  • Proactive Planning: The importance of early estate planning in response to tax law changes.

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Changes to Both Gift and Estate and Capital Gains Taxes expected under Biden’s administration

President Joe Biden presented reform strategies during his presidential campaign, creating a prudent need for high-net-worth families to review their estate plans early in 2021. While campaigning, President Biden proposed several tax changes, two of them significant estate planning tax changes.

The first is a premature reduction of the gift and estate tax exemption from the Tax Cuts and Jobs Act of 2017. The second is ending the step-up in tax basis for capital gains taxes on inherited property. Let’s take a look at both.

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Three Significant U.S. Trust Tax Cases, One Issue: Nexus Between a State and a Trust

Key Takeaways

Trust taxation insights:

  • Nexus Requirement: States must have a significant and existing nexus with a trust to tax it constitutionally, challenging historical practices.
  • Migrating Trusts: Strategies for trust migration can influence state tax implications, emphasizing the importance of jurisdiction selection.
  • Role Residencies: The residency of trustees and beneficiaries significantly impacts a trust’s taxability, underlining the value of expert estate planning.

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When are states permitted to tax undistributed trust income?

As I am researching another precedent-setting trust case for an upcoming virtual continuing education panelist discussion for IICLE (Illinois Institute for Continuing Education), it’s hard to ignore the trend we see regarding trust taxation.

In 2018, we closely followed the Fielding case’s trajectory with our business development director and company president. We watched as Fielding won in Minnesota’s Supreme Court and as the case landed on the steps of the Supreme Court of the United States.

Also, on the SCOTUS steps at the time was the Kaestner case out of North Carolina. As many of us are very aware, SCOTUS denied hearing Fielding but argued Kaestner, and the rest is history.

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Kaestner and Fielding: SCOTUS Implications Create Opportunities

Kaestner wins, Fielding Denied: What we can learn when analyzed together. 

On June 21, 2019, in North Carolina v. Kimberley Rice Kaestner 1992 Family Trust, Docket No. 18–457, the United States Supreme Court (SCOTUS) ruled that the residency of a beneficiary in a U.S. state alone was not sufficient nexus (connection) for a state to tax the undistributed net income of a trust. 

Many commentators have written about the case and its implications. However,  SCOTUS declining the writ of certiorari to Minnesota’s Fielding case right after deciding on Kaestner should not be overlooked.

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The Impact of New Federal Tax Laws on Existing Trusts and Estates

It’s Time to Revisit Old Trusts – New Federal Exemptions Could Give Wealthy Families a False Sense of Security

The end of 2017 saw significant changes in federal tax law when President Donald Trump signed the “Tax Cuts and Jobs Act.” The impact of the Act on estate planning could affect those with existing estates and those who might be considering drafting a trust in the future. While many changes will work to benefit estates, there are several things to be aware of and consider.

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Supreme Court to Address State Taxation of Trusts

Why Two State Trust Cases Have Escalated to the SCOTUS and What That Could Mean for Estate Planning

BREAKING NEWS from the Supreme Court in Washington D.C. While much of the estate planning community is at the Heckerling conference in Orlando, the U.S. Supreme Court of the United States (SCOTUS) decided on Friday to grant a writ of certiorari in The Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue case.

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U.S. Supreme Court Looking at Two Cases Relating to State Taxation of Trusts

Minnesota and North Carolina appeal to the Supreme Court in Trust Taxation Cases

The United States Supreme Court will review two petitions for a writ of certiorari from the states of North Carolina and Minnesota. Both states lost cases in their respective State Supreme Courts where the state laws were deemed in violation of the United States Constitution under Due Process Clause. Both states have appealed to the U.S. Supreme court for review.

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Using NING Trusts to Significantly Reduce State Income Tax Liabilities

Why Wealthy Families are Choosing to Shift Their Wealth to the Tax-Favored State of Nevada

The state of Nevada is considered a tax-favored environment, allowing maximum tax protection over trusts and estates. That’s just one of the reasons why more and more people are choosing Nevada to establish their trusts.

The “NING” trust or Nevada Incomplete-gift Non-Grantor trust reduces state income tax liabilities and simultaneously provides asset protection benefits.

For people with substantial income, assets, or large capital gains who could generate significant Federal and state income tax shifting a trust from its current state to a state with more favorable tax laws, such as Nevada, could create significant income tax savings.

While moving to Nevada would allow someone to take advantage of these benefits, relocating family is often not an option. However, by establishing a NING and transferring assets from the existing trust into the NING, the trust will only face Federal capital gains taxes.

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Alliance Trust Company of Nevada in The Economist

Typically well-reasoned and published since 1843, many believe that the Economist is the finest English-print magazine in the world.  The magazine tackles complex global issues with a balance and perspective that only a 170+ year history can provide.

That is why, in the context of the media fury surrounding the “Panama Papers,” the Economist’s suggestion to publish individual global tax returns (April 9th edition) deserved to be publically questioned.  To the credit of the publication, Alliance’s letter to the Editor is published in the April 30th print edition.

In the letter, the President of Alliance Trust argues that no benefit will come from such a disclosure plan or the OCED’s related “Common Reporting Standards.”  The impact of sharing detailed personal financial information with rogue governments around the world will not increase U.S. tax revenues by a cent.  In fact, the only meaningful outcome of the proposals is to violate basic personal privacy significantly increases the physical and financial risk to law-abiding citizens and their families around the world.

The Government of Kazakhstan Knows my Retirement Account Balance?

The New York Times “Room for Debate” opinion pages recently asked Alliance Trust Company in Reno to comment on the Panama Papers and the advantages of and lawful usages of shell companies.  In this piece, Alliance notes that the vast majority of these companies are used legally, providing a layer of security and privacy for international families in an increasingly dangerous world.

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Alliance Presentations in San Diego – Recap of the Gathering

Last month Alliance Trust presented at the Southern California Institute’s annual “Gathering” of elite advisors from around the country in San Diego.  The topics of the two-day seminar included a panel debating the best family trust jurisdictions, and various methods and strategies to minimize and reduce estate, state, and federal income taxes.

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