2018 Estate Planning Update
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which dominated the news in December, took effect on January 1, 2018, making massive temporary and permanent changes to the tax code. To view some of the highlights, click on the links below.
Because this law was passed so quickly, guidance and technical corrections to clarify some of these provisions are expected in the coming months. We will keep you posted.
Tax Changes for Individuals
Tax Changes for Estates and Trusts
Tax Changes for Partnerships and Other Pass-Through Entities
Tax Changes for Corporations
Tax Changes for Exempt Organizations
If you have questions regarding planning under the new Tax Act, please don’t hesitate to call any of the attorneys in Helsell Fetterman’s Taxation Group.
Estate Planning Update
New Law Requires Changes to Partnership and LLC Agreements
In addition to the substantial changes imposed by the Tax Act, the Bipartisan Budget Act of 2015 (“BBA”) sets forth new rules that affect partnerships and other pass-through entities. These new rules also took effect January 1, 2018.
The BBA contains two big changes for pass-through entities, such as general partnerships, limited partnerships, and limited liability companies (LLCs) with more than one member.
First, the BBA allows the IRS to assess and collect unpaid tax at the partnership entity level, rather than among individual partners. This allows the IRS to streamline audits of large and tiered partnerships. Certain partnerships can qualify to elect out of these new rules. If a qualified partnership makes such election, it can push any adjustments assessed at the partnership level to the individual partners, who then have to report the adjustment on their individual income tax returns.
Second, the BBA changes the role of the Tax Matters Partner. Prior to the new law, all partnerships and LLCs were required to name a Tax Matters Partner, who had certain latitude to work with the IRS on behalf of the partnership. The new law enhances the role of the Tax Matters Partner (now called the Partnership Representative), and gives this representative the sole and exclusive power to bind the partnership and all partners during an audit.
The key takeaway is that partnership and LLC agreements will need to be updated, both to designate a Partnership Representative, and to define the desired rights of the partners to participate in tax audit and settlement decisions.
Your Cell Phone Could Save Your Life – Even Without Making a Call
Who would you want contacted following a serious accident? Do you carry your emergency contacts in your wallet? Do you keep important medical information with you at all times? You carry your smartphone with you everywhere you go, and it has the ability to store your emergency contacts (“In Case of Emergency” or “ICE” contacts) and medical information in a way that is accessible to first responders, such as paramedics, firefighters, and police officers, as well as hospital personnel.
If you do not have ICE information in your phone (i.e., pertinent health information you would want to convey to a first responder, such as medical conditions, allergies, medications, and blood type, as well as the names and phone numbers of those who should be contacted if you cannot communicate such information), you should strongly consider adding it. To learn how to add ICE information to your phone using a few of the most popular operating systems, click on the link below. As you add this information, keep in mind that if you have security features such as a locked screen accessible by a key, password, or fingerprint, you will need to ensure that your ICE information is accessible through the locked screen.
Instructions for putting ICE on your mobile phone
In order to provide quick and accurate information to first responders, it is important that they have access to your health history. By adding ICE contact information to your phone, you are ensuring that the information is readily available.
Gifting of Family Partnership and Family LLC Interests
For almost a decade, the Treasury Department alluded that it was working on proposed regulations to limit the ability of family members to take “lack of marketability” and “lack of control” discounts for lifetime gifts of closely-held family businesses. On August 4, 2016, the IRS issued its proposed Internal Revenue Code (IRC) section 2704 regulations, which, for the most part, completely eliminated the availability of these discounts. Since these proposed regulations were released, estate planners and tax professionals have been in a state of limbo as to when they would become effective.
Recently, however, on October 2, 2017, the Treasury Department announced its plans to withdraw the proposed regulations under IRC section 2704. As the Treasury Department put it, the “regulations would have made it difficult and costly for a family to transfer their business to the next generation,” and the “Treasury and the IRS now believe that the proposed regulations’ approach to the problem of artificial valuation discounts is unworkable.” With the IRS’s announcement in October that the proposed IRC section 2704 regulations would not become effective, there is renewed confidence in the ability of taxpayers to transfer minority interests in family-owned businesses.
Creating business entities, such as family limited liability companies and family limited partnerships, to manage investments and conduct family businesses is often the first step in any sophisticated estate plan. The benefits include: (i) asset protection; (ii) increased ease in transferring fractional interests in assets to family members; (iii) limiting or avoiding federal and/or state estate tax exposure; (iv) planning for the orderly transition of family businesses and investments to the next generation; and (v) shifting equity and income to the next generation. Additionally, lifetime gifting strategies that leverage these valuation discounts can help Washington residents reduce their taxable estates to lessen the impact of Washington’s state estate tax, which remains intact despite recent increases to the federal estate tax exemption.
With the recent assurance from the Treasury Department that these beneficial types of valuation discounts will remain available for closely-held family businesses, now is a great time to consider revising your estate plan and gifting strategy to fully leverage these benefits.
Traveling When You Have Minor Children
Traveling Without Your Children. Many parents travel and leave their minor children in the care of grandparents, other family members, and even close friends. Unfortunately, the caretaker does not have authority to make medical decisions for the minor if something were to happen to the minor and the parents were not reachable.
A Power of Attorney for a Minor Child allows parents to designate another person to make decisions for their minor children if the parents are not reachable. The Power of Attorney is temporary, usually only for the length of the trip, and it can be revoked at any time by the parents. We strongly encourage parents who leave their children in the care of a babysitter or other adult for an extended period of time to consider having a Power of Attorney for a Minor Child in place.
Your Child is Traveling without Both Biological Parents. Sometimes a child may travel with only one parent, or with neither parent, in the case where grandparents take grandchildren on a trip. While there are rarely difficulties traveling within the US, traveling outside the US can be problematic.
The US Customs and Border Protection (CBP) is very sensitive to the possibility of child abduction. To avoid any issues, CBP strongly recommends that each chaperone carry a notarized letter from the non-traveling parent or parents stating that he/she/they consent to allow the minor to leave the country. If the child has only one custodial parent, the CBP strongly recommends that the traveling adult carry relevant paperwork such as a court decision, birth certificate naming only one parent, or a death certificate for the deceased parent.
Neighboring countries have similar concerns. For example, Canada strongly recommends that children carry a consent letter if they are traveling abroad alone, with only one parent, with a guardian, friends, relatives, or with a group. The letter should contain the dates of travel, parents’ names, photocopies of the parents’ state-issued IDs, and both parents’ notarized signatures. While Mexico’s legal requirements apply only to minors with Mexican citizenship, the US Embassy in Mexico has received numerous reports of problems, and therefore recommends that all US minors traveling to Mexico without both parents carry a notarized consent letter at all times. Many cruises stop in the Bahamas, and while it may be quite easy to enter the Bahamas, returning home may be difficult without a notarized consent letter from both parents granting permission for the child to travel.
To avoid a harrowing airport experience, feel free to contact us before you plan to travel solo with a minor child or have someone else chaperone your child on a trip. We would be happy to provide you with a consent letter.
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