IRS Revenue Procedure 2017-34, effective as of June 9, 2017, increases the amount of time that a surviving spouse has to file an estate tax return (Form 706) for the purpose of electing portability of the Deceased Spousal Unused Exclusion amount (otherwise known as “DSUE”). The portability election, which was first introduced in 2010 and made permanent under the American Taxpayer Relief Act of 2012, offers a great way for a surviving spouse to preserve the unused estate tax exemption of their deceased spouse. The DSUE amount can then be added to the surviving spouse’s own exemption amount and be used to shelter the surviving spouse’s lifetime gifts and transfers at death from estate taxes.
Prior to June 9, 2017, a portability election was required to be made on a timely filed estate tax return, due to the IRS nine months from the decedent’s date of death, with the availability of an automatic six month extension. The IRS has once before provided some relief from this deadline in Revenue Procedure 2014-18, but that ruling was temporary and provided no relief for the estates of decedents dying after January 1, 2014. The IRS claims to have been flooded with numerous requests for an extension of time to file for the portability election and has issued this new Revenue Procedure to provide a simplified method to obtain the extension to elect portability for a decedent’s estate who has no estate tax filing requirement to the later of (i) January 2, 2018 or (ii) the second anniversary of the decedent’s date of death. Note that the regulation provides that this longer deadline is not available to the estate of a decedent if an estate tax return was timely filed. In such case, the executor either will have elected portability by timely filing the return or will have affirmatively opted out of portability by not making the election. Read more >>
As regular readers of this blog know, one of our favorite topics is digital assets, including estate planning for digital assets. Today, we’re taking a slightly different focus and discussing developments in digital estate planning, more commonly known as electronic wills.
One of the more recent developments in estate planning is the concept of electronic wills. In general, an electronic will is one that is signed and stored electronically. Instead of signing a hard copy document in ink, the testator electronically signs the will, and it is also signed by witnesses and notarized electronically. Not surprisingly, companies like LegalZoom are very interested in this topic.
The Oklahoma Supreme Court recently upheld a ruling that has required the Personal Representative of an Estate to take the necessary steps to transfer the deceased spousal unused election (DSUE) to the surviving spouse. The case stems from the rights created by the federal gift and estate tax laws regarding portability. More specifically, beginning in 2010 one spouse was allowed to transfer, at death, his or her unused gift and estate tax exemption to the surviving spouse. Prior to 2010, each spouse had his or her own gift and estate tax exemption, but any portion of that exemption which remained unused by the spouse at death could not be transferred to the surviving spouse.
In In re Estate of Vose, 390 P.3d 238 (Okla. 2017), the Personal Representative of the Estate, one of the children of the decedent by a prior marriage, had refused to make the required election for transfer even though the surviving spouse agreed to pay the cost required to prepare the necessary Federal Estate tax return to do so. Read more >>
It is well documented that all of our lives have become more data-driven and we are practically tethered to our electronic devices. Therefore, it should not be surprising to realize that more and more of our assets, and those of our clients, have a digital component. What may be surprising, however, is just how much value we place on our digital assets. Surveys report that the average value of personal digital assets owned by individuals globally ranges from $35,000 – $55,000.
A few key words typed into any search engine, including a review of articles written on this blog, will provide a wealth of information on accessing digital assets, including digital assets in your clients’ estate planning documents, and safeguarding your digital assets inventory. However, after the client’s death, once we have a list of their digital assets, and have gained access those assets, it is prudent for the probate and trust practitioner to remember to value those assets. Read more >>
RUFADAA is a significant leap by the State of Colorado to catch up to the digital age. Prior to the passage of the law, the pervasive use of electronic banking and investing has posed a problem for many fiduciaries. Without the receipt of paper statements, personal representatives, financial agents, trustees and conservators have had a difficult time locating an individual’s assets, sometimes leading to an exhaustive search of several banking and financial institutions before asserts are uncovered. Read more >>
by Andy Lemieux, Elizabeth Meck, and Jessica Schmidt
As any practitioner who has dealt with the distribution of mineral interests from a decedent’s estate knows, dealing with these interests can be tricky and the process is not always clear. This is particularly true when old interests have not been distributed properly at the time of death. Thankfully, recent decisions in Colorado, as well as updates to certain provisions of the Colorado Probate Code, provide some clarity to this process. A recent decision in Utah also provides clarity about who is entitled to the proceeds of production from oil and gas operations when life tenants and remaindermen are involved.
Specifically, Colorado just updated its statutes governing the process for the determination of heirship, found in the Colorado Probate Code at Colo. Rev. Stat. § 15-12-1301, et. seq. A sub-committee of the Trust and Estate section of the Colorado Bar Association carefully reviewed the existing statutes, coordinated efforts with other sections of the bar, and with the approval of the Trust and Estate section, presented revisions to these statute sections as part of the omnibus bill, SB 16-133, in February 2016. The committee’s goal was to address the issues Colorado practitioners have experienced in trying to distribute these interests from dormant or previously-unopened probate estates and to make the process to distribute previously undistributed property, including mineral interests, more clear. SB 16-133 was signed by Governor Hickenlooper on May 4, 2016, thereby adopting the revisions recommended by the committee. A copy of the Bill as enacted can be found here.
For our litigation clients, a fiduciary’s failure to consider the tax impact of their actions can be the genus for litigation and anticipated tax savings can be the engine that drives a settlement. For our fiduciary clients, it is important for them to ensure that transfer taxes are minimized for the benefit of their beneficiaries. For our planning clients, tax planning is a key component in determining the best structure for their wealth transfer planning. Given the importance of transfer taxes in our practice, we wanted to highlight a few items from the IRS 2015 Data Book relating to estate and gift tax returns:
Number of Tax Returns filed during 2015
36,343 estate tax returns (545 from Colorado)
237,706 gift tax returns (4,492 from Colorado)
Estate tax returns – $17,066,589 collected
Gift tax returns – $2,052,428 collected
Percentage of 2014 Tax Returns Audited in 2015
7.8% of all estate tax returns
Gross estate less than $5 million – 2.1% audit rate
Gross estate greater than $5 million but less than $10 million – 16.2% audit rate
Gross estate greater than $10 million – 31.6% audit rate
0.9% of all gift tax returns
Results of Audits
22% of estate tax returns examined had no change
34% of gift tax returns examined had no change
70 estate tax returns and 135 gift tax returns had unagreed recommended additional tax
543 estate tax returns and 43 gift tax returns resulted in tax refunds
The entire world entered mourning when music legend Prince died unexpectedly on April 21, 2016 at the age of 57. There is certainly no shortage of stories and speculation in the news and social media regarding the circumstances surrounding his death, and the handling of his legal, personal and business affairs.
However, as trust and estates professionals, we are drawn to the estate planning, or lack thereof, of the cultural icon. The story that will undoubtedly change and evolve as the estate is administered can be an entertaining and valuable source of lessons learned to share with clients, family members, and dare I say, ourselves.
No one has been able to find a Will. The initial reports stated that no one was able to find a will, and no one had reason to believe that a Last Will and Testament had been created. This underscores not only the importance of having a Will, but also of making sure your nominated personal representative knows where to find it. Most jurisdictions still require the original will to be lodged or filed with the Court, so your loved ones will need to be able to easily access the original signed document. Copies are generally not acceptable without additional court action. The best place to store those documents may also not be in a bank safe deposit box, unless that person has access to the box already. Otherwise, it may require Court intervention to access the box to determine if a Will is inside. Communication before your death with those that you trust to handle your affairs after your death will alleviate much stress and confusion. Read more >>
Executors of estates required to file a Form 706 Estate Tax Return, and filing such return after July 31, 2015, must comply with two new reporting requirements. These requirements are set forth in Section 6035 of the Internal Revenue Code (the “Code”), and corresponding proposed regulations. The new reporting obligations are designed to ensure that the initial basis in property distributed to an estate beneficiary is equal to the value of such property for estate tax purposes, and to provide for ongoing consistency of basis. These obligations include both (1) filing form 8971 with the IRS, and (2) providing a statement to certain beneficiaries with information about the value of estate assets received by those beneficiaries.
Who Must File
The term “executor” as used in Section 6035 incorporates the estate tax definition set forth in Section 2203 of the Code. As a result, for purposes of identifying who must complete these filings, the term includes, for example, the trustee of a fully funded revocable trust.
The proposed regulations clarify that an executor filing a form 706 that is not required, but which is filed to elect portability or to make GST elections, is not required to fulfill these reporting obligations. Read more >>
The Colorado Supreme Court upheld the strict privity doctrine for attorney malpractice claims by nonclients and reaffirmed that an attorney’s liability is limited to when the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation. Baker v. Wood, Ris & Hames, case number 2013SC551 (2016 CO 5).
In Baker, the dissatisfied beneficiaries sued the attorneys for their father and alleged as follows:
The attorneys failed to advise their father of the impact of holding property in joint tenancy.
The attorneys failed to advise their father that failing to sever those joint tenancies would frustrate his intent to treat his children equally with his stepchildren.
The attorneys’ actions allowed the surviving spouse to change their father’s estate plan after his death.
The attorneys drafted documents for the surviving spouse that were different from their father’s original plan.
The beneficiaries were the intended beneficiaries of the client’s plan, that the attorneys failed to advise the beneficiaries of the relevant facts, and that they had suffered damages as a result.
The beneficiaries asked the Colorado Supreme Court to adopt the “California Test” or the “Florida-Iowa Rule” and set aside the strict privity rule. The Court rejected the adoption of both tests and reaffirmed the strict privity rule. The Court also held that the beneficiaries’ claims would fail under both the California Test and the Florida-Iowa Rule.
The Court put forth the following rationales for upholding the strict privity rule in Colorado:
It protects the attorney’s duty of loyalty to the client and allows for effective advocacy for the client.
Abandoning strict privity could result in adversarial relationships between an attorney and third parties. This could result in conflicting duties for the attorney.
Without strict privity, the attorney could be liable to an unforeseeable and unlimited number of people.
Expanding attorney liability to nonclients might deter attorneys from taking on certain legal matters. The Court reasoned that this result could compromise the interests of potential clients by making it more difficult to obtain legal services.
Casting aside strict privity would increase the risk of suits by disappointed beneficiaries. Those suits would cast doubt on the testator’s intentions after his or her death when he or she is unavailable to speak.
The beneficiaries have other avenues available to them, including reformation of the documents.
A personal representative can pursue legitimate claims on behalf of a testator.
The Court held, “We further believe that the strict privity rule strikes the appropriate balance between the important interests of clients, on the one hand, and non-clients claiming to be injured by an attorney’s conduct, on the other.” As a result, the strict privity rule remains intact in Colorado.