Getting married marks the beginning of a new life chapter, and with it comes more than just shared homes and joint bank accounts. It also brings important legal and financial decisions that many newlyweds overlook: estate planning.
Whether you’re entering your first marriage or your second, creating an estate plan early on helps ensure your spouse and loved ones are protected, your assets are properly managed, and your future is built on clarity and peace of mind.
Nevada is a community property state, meaning that, without a written agreement to the contrary, most assets and debts acquired during your marriage are presumed to belong equally to both spouses. This can have a major impact on how your property is treated if something unexpected happens.
And if this is a second marriage? That often means blended families, children from prior relationships, and separate assets you may want to keep protected.
Here’s why estate planning should be a priority:
If you want to keep certain assets as separate property—such as a house, investment account, or business owned before marriage—you’ll need to take extra steps. That may include creating a premarital or postmarital agreement, or clearly stating your wishes in your trust or will. Without planning, your spouse may have a legal interest in everything acquired during the marriage.
If one or both of you have children from a previous relationship, estate planning becomes even more important. A basic will may not be enough to ensure your kids are taken care of. You can use a revocable living trust to control exactly who receives what—and when—while still providing for your spouse.
A will allows you to name beneficiaries and designate a guardian for minor children. A living trust can help you avoid probate, manage community and separate property, and ensure your wishes are followed efficiently.
Married or not, no one automatically has the right to make medical or financial decisions for you unless you give them that authority. Through a durable power of attorney and healthcare directive, you can legally designate your spouse—or someone else—to act on your behalf if you’re incapacitated.
Don’t forget to update life insurance, retirement accounts, and bank accounts. These designations override your will and are often left outdated after marriage.
Marriage is a partnership, and like any good partnership, it’s built on communication and planning. Estate planning isn’t just about what happens when you pass away; it’s about protecting each other during life, honoring your family dynamics, and making your intentions clear.
Whether you’re newly married, entering a second marriage, or starting a blended family, the decisions you make now can prevent confusion, conflict, and costly legal issues down the road.
At Jeffrey Burr, we help newlyweds design customized, affordable estate plans that protect their families, preserve their assets, and simplify their future. Contact us today to get started.
Creating an estate plan is one of the most important things you can do to protect your family, your assets, and your wishes—but it’s not a one-and-done task. Life changes, and so should your estate plan.
Whether you created your estate plan five years ago or five months ago, regularly reviewing and updating it is critical to ensure it still reflects your current circumstances, relationships, and financial goals. An outdated estate plan can cause confusion, unintended outcomes, or even litigation.
An estate plan is a snapshot in time, but life isn’t static. Over the years, you may experience major life events, changes in wealth, or shifts in family dynamics that could affect your original plan.
Here are some of the most common reasons to update your estate plan:
All of these can affect how your estate should be distributed or managed. You may need to update your trust, change how accounts are titled, or adjust your tax planning strategies.
Relationships evolve. You may have lost touch with someone named in your plan, or perhaps someone close to you now deserves a greater role, such as serving as a successor trustee, power of attorney, or guardian for your children.
Estate planning laws — especially regarding estate taxes, gift exemptions, and retirement accounts — can impact your strategy. Working with an estate planning attorney helps ensure your plan remains legally sound and tax-efficient.
Estate planning laws vary from state to state. If you’ve moved, especially to or from a community property state like Nevada, it’s essential to review how your documents align with local law.
A good rule of thumb: review your estate plan every 5-7 years, or sooner if you’ve experienced any major life changes. Even if everything seems the same, a quick check-in with your estate planning attorney can confirm whether your plan is still working as intended.
At Jeffrey Burr, we make the review process simple and stress-free. Whether you need a quick update or a full overhaul, our team in Southern Nevada is here to ensure your plan reflects your life today, not five years ago. Contact us to schedule a consultation today.
FinCEN Not Issuing Fines or Penalties in Connection with Beneficial Ownership Information Reporting Deadlines.
WASHINGTON, D.C. – FinCEN has announced that it will not issue any fines, penalties, or take any enforcement actions against companies for failing to file or update beneficial ownership information (BOI) reports under the Corporate Transparency Act by the original deadlines. No enforcement actions will be taken until the deadlines established in the newly issued interim final rule have passed. This decision aligns with the Treasury’s commitment to reducing regulatory burdens on businesses while prioritizing the reporting of BOI for entities that pose the most significant law enforcement and national security risks.
On March 21, 2025, FinCEN issued an interim final rule extending BOI reporting deadlines and providing additional guidance to affected businesses. The rule acknowledges the need for clarity while ensuring that BOI remains a valuable resource for national security, intelligence, and law enforcement purposes.
FinCEN has also opened a public comment period on potential revisions to existing BOI reporting requirements. These comments will be considered as part of a forthcoming notice of proposed rulemaking, anticipated later this year, aimed at minimizing burdens on small businesses while maintaining the integrity of BOI reporting.
As we prepare for significant changes in federal tax policy, one of the most important developments on the horizon is the anticipated reduction in the estate and gift tax exemptions set to take effect in 2026. For many individuals and families—especially those with considerable wealth or family-owned businesses—this shift presents both a challenge and an opportunity. Under the Tax Cuts and Jobs Act (TCJA), the exemptions were temporarily raised to levels that allowed estates valued at up to approximately $12–$13 million per individual to pass on to heirs without incurring federal taxes. In 2025, the gift and estate tax exemption stands at $13,990,000, and couples making joint gifts can effectively double that amount. However, this period of favorable taxation is coming to an end, and the anticipated reversion to lower exemption levels could dramatically alter estate planning strategies.
The high exemption amounts provided by the TCJA have allowed many families the flexibility to structure their wealth transfers effectively, safeguarding large estates from federal taxation and preserving legacies across generations. With the sunset of these provisions scheduled at the end of 2025, it is expected that the federal government will reduce the exemption levels substantially, returning to the 2017 thresholds. Adjusted for inflation, the single taxpayer limit could drop back to an estimated $7 million. Consequently, many estates that were once considered tax-exempt may soon fall into a taxable bracket.
The potential impact of these changes is far-reaching. For high-net-worth individuals, the sudden decrease in exemption amounts may result in a significant portion of their estate becoming subject to taxation, thereby reducing the overall wealth passed on to beneficiaries. Families with appreciating assets or family-owned businesses need to consider the timing of asset transfers carefully, as rising asset values could quickly push an estate over the new, lower threshold. Understanding the full implications of these anticipated changes is critical for making informed decisions about estate and wealth transfer planning.
Given these challenges, a comprehensive review of your overall estate plan is essential. This involves updating legal documents such as wills, trusts, and beneficiary designations to reflect your current intentions while accounting for the evolving tax landscape. Coordination with financial advisors, estate planning attorneys, and tax professionals is crucial to ensure that your plan remains robust and flexible. By engaging in regular scenario analysis and consultations, you can explore various strategies and understand their potential outcomes under both the current and forthcoming tax regimes.
The year 2025 represents a pivotal opportunity to take proactive steps before the changes take effect. One effective strategy is to accelerate your gifting. By transferring assets under the current favorable tax provisions, you can reduce the size of your taxable estate and mitigate the impact of lower exemption levels in the future. Lifetime gifting allows you to gradually shift wealth to your beneficiaries while benefiting from the current tax advantages, and the annual gift tax exclusion permits you to give a certain amount to as many recipients as you choose without affecting your lifetime exemption. These measures create additional, tax-efficient pathways for transferring wealth in line with your long-term goals and values.
Trust-based strategies form another important component of a proactive estate plan. Establishing an irrevocable trust can effectively remove assets from your taxable estate, offering long-term protection against future tax liabilities. For instance, an irrevocable life insurance trust (ILIT) is designed to hold life insurance policies so that the proceeds are excluded from your estate, thereby providing liquidity for your beneficiaries without triggering estate taxes. Similarly, a grantor retained annuity trust (GRAT) allows for the transfer of appreciating assets to heirs with minimal gift tax consequences by letting you retain an annuity for a predetermined period.
While the anticipated changes to the federal estate and gift tax exemptions present significant challenges, they also offer an opportunity for reassessment and strategic planning. Engaging with experienced professionals is key to navigating this complex landscape. Schedule a comprehensive review with your estate planning attorney, financial planner, and tax advisor to evaluate your current plan and discuss necessary adjustments. Scenario analysis and regular consultations will help you explore various strategies and understand potential outcomes under both the current and the upcoming tax regimes. Working with experts ensures that your estate plan remains both robust and adaptable in the face of impending tax law changes.
The impending reduction in the federal estate and gift tax exemptions, anticipated to take effect in 2026, underscores the importance of proactive planning in 2025. The benefits of the current elevated exemptions are significant, and delaying action could result in unforeseen tax liabilities and complications in wealth transfer. By accelerating gifting and implementing other effective tax planning strategies, you can safeguard your assets and ensure that your legacy is preserved for future generations.
The experienced professionals at Jeffrey Burr are prepared to help you navigate these upcoming tax law changes with confidence and precision. To ensure your estate plan remains robust in the face of these changes, contact the law firm of Jeffrey Burr today to schedule a consultation.
When it comes to estate planning, one of the most misunderstood tools is the Power of Attorney (POA). Many people assume that having a POA means everything is “taken care of” – even after they pass away. But here’s the truth: a Power of Attorney is only effective while the person who created it is alive, and in most cases, only while they are incapacitated.
Let’s break that down and explain why it’s such an essential – and time-sensitive – legal document.
Myth: A Power of Attorney Works After Death
One of the most common misconceptions we hear is:
"Don’t worry – I’m the Power of Attorney, so I’ll handle everything after they pass."
Unfortunately, that’s not how it works.
A Power of Attorney is a legal document that gives someone (called the “agent” or “attorney-in-fact”) the authority to act on your behalf only during your lifetime. And in many cases, that authority kicks in only if you become incapacitated, such as from an illness, injury, or cognitive decline.
The moment you pass away, your Power of Attorney becomes void. From that point on, only your will or trust and the successor trustee, court-appointed executor, or personal representative will govern what happens to your estate.
Types of Power of Attorney: Financial vs. Health Care
There are two primary types of POAs, and they serve very different roles:
This document allows your chosen agent to manage your financial affairs. It can be drafted to be:
Typical powers include:
A financial POA helps avoid court-supervised conservatorship and keeps things moving during emergencies.
Also called a Medical Power of Attorney or Health Care Proxy, this document gives your agent authority to make medical decisions for you if you are unable to speak for yourself due to incapacity.
These decisions may include:
This document often works alongside an Advance Directive or Living Will, which outlines your specific wishes regarding life support or resuscitation.
What Happens After Death?
Once a person passes away, the POA is no longer valid. At that point, the successor trustee, executor named in their will, or court-appointed administrator if there is no will, is responsible for:
Final Thoughts
A Power of Attorney is one of the most important tools in an estate plan – but it only protects you during life, and usually only when you’re unable to act for yourself. It does not replace a will, trust, or other end-of-life planning tools.
Having both a financial and a health care POA in place ensures that someone you trust can step in to help if you're ever unable to make decisions for yourself. But without these documents, your loved ones could be forced to go through lengthy (and expensive) court proceedings to get the authority they need.
If you don’t yet have a POA or haven’t reviewed your estate plan in years, let’s talk. We can help you put the right documents in place – and give you peace of mind for whatever life brings. Contact The Law Firm of Jeffrey Burr today to get started!
FinCEN just released the attached notice regarding Beneficial Ownership Information (BOI) reporting under the Corporate Transparency Act (CTA). Below is a brief summary:
BOI Reporting Deadline Extended: FinCEN has extended the reporting deadline by 30 days from February 19, 2025. The new deadline is now March 21, 2025, for most reporting companies.
Regulatory Review: FinCEN plans to revise the BOI reporting rule to reduce the burden on lower-risk entities, including many small businesses. However, for now, all required entities must file.
Court Ruling Impact: The extension follows a court ruling (Smith, et al. v. U.S. Department of the Treasury), which initially paused BOI reporting. That pause has been lifted, making BOI reporting mandatory again.
Exempt Entities: Plaintiffs in National Small Business United v. Yellen and entities associated with that case are not required to report at this time.
We are encouraging our corporate clients who have not yet filed to contact our office so that we can file for their entity.
Navigating BOI reporting requirements can be complex, and missing the deadline can result in penalties. If your business needs assistance with filing or understanding these new regulations, our experienced team at Jeffrey Burr is here to help. Contact our office today to ensure your compliance with FinCEN’s reporting requirements.
The Corporate Transparency Act (CTA) went into effect on January 1, 2024, requiring companies to report information about "beneficial owners"—those who own at least 25% of or exercise substantial control over the reporting company. Newly formed Companies that fall under the definition of “Reporting Companies” will need to file the Beneficial Ownership Information (“BOI”) report with the Financial Crimes Enforcement Network (“FinCEN within 90 days of formation. Reporting Companies formed prior to January 1, 2024 will have until January 1, 2025 to file the BOI report with FinCEN.
The law exempts certain categories of businesses such as significantly tax-exempt entities and large operating companies. Large operating companies, put simply, have more than 20 full-time employees in the United States, a physical office in the United States and more than $5 million in U.S. gross receipts.
Trusts are exempt from filing under the Act unless they own an interest in or control a Reporting Company. For trusts that own an interest in a Reporting Company, the following individuals will be considered beneficial owners:
Don’t wait until the end of the year, secure your FinCEN Identifiers as soon as possible. Should you have any questions about the CTA requirements, or if you would like us to assist you, please contact cta@jeffreyburr.com. For more information, please visit www.fincen.gov.
President Biden issued his budget proposal on March 11, 2024. The document’s full title is “General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals.”
Transformative Tax Changes Will Redistribute Wealth
If even some of these proposals are enacted into law it could dramatically change taxation of the wealthiest Americans and substantially reduce the wealth that will be able to be passed to their future generations. Never say never. No one can predict what negotiations in Congress might result in. No one can predict the upcoming election. Many similar proposals have been floated by Democrats many times over many years. Some or all of these may, in fact, be enacted. Given how costly and impactful these provisions could be, the safer and wiser course of action for those who seek to preserve wealth and pass it on is to plan now. But the changes proposed so accurately zero in on many of the most common wealth transfer strategies that whether you planned years ago, plan now, or just wait, your options to shift wealth will be dramatically limited. Further, the proposals to increase income taxes on the wealthy will exacerbate the estate tax changes.
You should consider planning for all of the harsh Biden budget proposals being enacted. Perhaps, some or all might be. So, creating grantor, irrevocable, trusts, and making gifts to them before year end might be prudent. If you’re still a fence sitter set up the trust and put $1,000 in it. That way, if you get closer to any potential deadline (year-end 2024, the date of enactment of a new law, etc.), you will be in the batter’s box, ready to swing at your planning goals. If you do nothing but wait, you may not have time to contemplate or implement a trust plan properly. So, tee up your plan now.
If you pursue the above course of action, consider a couple of concepts that may serve as guiding principles. Given the incredible uncertainty, plan with flexibility. Incorporate into any planning documents mechanisms that give you flexibility to adjust to possible future developments. Also, in case you do transfer substantial wealth to one or more trusts, preserve reasonable access to trust assets. For example, instead of just setting up a trust for your descendants, perhaps your spouse can be named a beneficiary as well. That may still facilitate your achieving estate tax planning and asset protection (lawsuit protection) goals, but retaining more access.
You should not take any planning steps that you might regret if the estate tax is repealed. If you are really uncomfortable transferring significant wealth to irrevocable trusts and only would consider doing it in case the Biden tax proposals are actually enacted, they carefully weigh whether you should do anything. But, as explained above, if you can plan flexibly and with access, you may protect your assets from claimants which alone may be a sufficient planning benefit from planning even if the estate tax is repealed.
2026 Is Coming
When evaluating what planning steps to take in light of the Biden Budget proposal, consider that in 2026, many of the favorable tax changes enacted as part of the 2017 Tax Act will likely sunset. The gift, estate, and generation-skipping transfer (GST) tax exemption will come down by half. Some taxpayers should evaluate making gifts before the end of 2025 to secure the bonus exemption before it is lost on January 1, 2026. If a taxpayer is considering planning for the reduction in the exemption, why not try to complete that same planning before the end of 2024 just in case the Biden Budget gets enacted in 2025 and provisions in the proposal with a December 31, 2024, effective date actually become effective then?
Consider that we live in the most litigious society in history. That's not going to change, regardless of what happens in Washington. So, planning to protect wealth from claimants remains a justification for planning. Right now, there are many planning techniques that advisers can use to help taxpayers accomplish their goals. So right now is a great time to pursue planning opportunities. Those tools can enhance flexibility. So why wait? Plan now, but plan prudently.
Consider the possible benefits of having as much of your wealth as reasonable held in flexible, long-term irrevocable trusts, with all the appropriate planning bells and whistles. With that approach, you may be better able to deal with any changes that occur. Also, so long as you preserve access to assets in the trust you create, perhaps you cannot hurt yourself too badly.
Capital Gains Tax Changes
Biden's proposal would eliminate the preferential long-term capital gains rate when income exceeds $1 million. That would mean capital gains would be taxed at ordinary income tax rates instead of at more favorable lower capital gains tax rates. President Biden wants the tax rate to increase on top earners from 37% to 39.6%. That is almost double the 20% capital gains rate. Therefore, this change would have harsh tax consequences on some taxpayers. For example, if you sell a closely held family business the income from that once-in-a-lifetime sale could push you past the $1 million level and you would lose capital gains tax rates for that year. If this is enacted, it might be possible to complete transactions over time (e.g., sell 10% of the stock each year) to realize gains in lower income tax brackets over many years, or use the installment method of reporting to spread the gain out over many years and perhaps at lower rates.
What might this change trigger? You might hold investment assets for longer since the cost to sell will increase substantially. If you are anywhere near that $1 million threshold you’ll want to plan years in advance of a controllable sale to try to avoid hitting that million-dollar figure if you can.
Realization on Gift or Death
Under current law you generally don’t recognize any taxable gain for income tax purposes when you make a gift of assets, or on death. The proposal would change this historic foundation of tax law and would tax a transfer property by gift or it death. These would be a realization of events. There will be a $5 million exclusion from this gain so it will only effect wealthier taxpayers. But those effected will face a costly sting that will change how they plan and what they do. If you want to gift appreciated assets to a trust to protect them from claimants, that could trigger an income tax cost to do so. If the 39.6% ordinary income tax rate applied it would make it impractical to do so as you would lose 40% (more if state or local income taxes also applied) of the value to taxes immediately. Many people will prefer to take the chance with a possible creditor in the future than to diminish their wealth by that much immediately.
If on your death your estate paid an income tax on appreciated assets, it would get an income tax deduction for the income tax paid in calculating the estate tax. But the overall tax burden would be very costly. If you live in a state like New York or Connecticut, where there is a state estate tax, the marginal overall tax rate at death could be 60-80% percent.
If this rule taxing appreciation on gifts is passed, many taxpayers will rush to make gifts, trying to beat the tax trigger. Having your plan in place and trusts already created might enable you to get the transfers done before the change is effective. But that is always a gamble trying to beat the effective date of a new law. So, some taxpayers should consider making gifts now for this reason as well as the reasons noted above.
Tangible Assets
Tangible personal property (e.g., furniture) is excluded from the realization proposals. Collectibles (e.g., artwork), however, are not excluded. Also the home exclusion of $500,000 for a married couple will remain available.
The Code Section 1202 $10 million exclusion for certain small business corporate stock will remain available.
These new rules, if enacted, could impact your choice of investments and assets.
How can you differentiate between personal effects and collectibles? Let's say you have a very valuable art collection. If you want to transfer artwork to a child so the child can hang it in their home, it seems like that may trigger a gain on that gift of artwork. That could be a significant cash flow issue because you do not have anything that's actually generating cash from the gift transaction with which to pay a tax. Does that mean that you loan the artwork to your child instead of gifting it? Is that going to be a way around this new tax rule? And then, if you loan it, what about insurance? If you continue to own the art, and your child has possession, that may complicate the insurance coverage you both may need. Contrast that with the simple gift where your child would insure it post-gift. Simple transactions that you wouldn’t put a lot of thought into under current law may become incredibly complex if gain recognition on gifts is enacted.
Gifts to a non-grantor trust (a trust that pays its own income tax) would trigger again.
Gifts of property to your spouse will not trigger gain under the proposed deemed realization rules. This could create even more complexity in planning for blended families. If you are in a second, third, fourth, or later marriage, and have highly appreciated assets there would be a significant tax incentive to bequeath those assets to your spouse to avoid gain on your death. If you bequeath the same assets to children from a prior marriage that will trigger gain. If you have both assets that are highly appreciated and assets that have not appreciated significantly, you could bequeath the appreciated assets to your spouse so gain is deferred, and non-appreciated assets to your children. That process, however, will make will drafting and planning more complex.
Transfers to charity would not generally be deemed a recognition event. Gifts to charity will not trigger any gain. So, if you gift appreciated stock to a public charity, there is no gain. If you gift assets to any type of split-interest trust, there'll be realization on the non-charitable portion. That will reduce the benefit of a gift to a charitable lead trust (CLT) or a charitable remainder trust (CRT). Such transfers would trigger gain to the extent of the interests of the non-charitable beneficiary. A typical CRT is structured with the minimum tax law requirement of a 10% remainder interest to charity. That would mean that 90% of the gain would be realized as you receive payments out of the charitable trust. Hopefully there will be an exception for a split-interest charitable trust for a spouse and charity so that it would not be taxable. If you structure the split-interest trust to zero-out the value of the taxable (i.e., non-charitable) portion, that should avoid immediate gain.
Gain on Death
When someone dies the tax they pay on the appreciated assets under the Biden proposal would be a deduction on the estate tax return for the income tax paid by the estate. That would reduce the overall tax burden, but the overall cost would remain hefty. If President Biden succeeds in raising the income tax rate your estate could owe approximately 40% income tax on the gain realized on death and then a 40% estate tax on your assets reduced by the income tax paid. Estates must plan for the liquidity necessary to pay the new income and continuing estate tax costs. Also, don’t forget that if the other proposed changes are enacted, the estate tax will be much higher under the new tax system because of the myriad of restrictions on planning options, resulting in a larger taxable estate than under the current law. The overall tax burden for wealthy on death could be dramatically increased.
Gain on Distributions from or Gifts to Trusts
Under current law, no gain is realized if you transfer assets to a grantor trust. If a trust distributes property to you, e.g., you swap cash for property held by a grantor trust, no gain should be realized. Under the new proposal, contributions or gifts to and distributions from any irrevocable trust will be deemed income tax recognition events. This one change alone will eliminate the ability to use one of the most popular estate planning tools, a transfer to a grantor trust. This will end estate planning as we know it today.
Making distributions of appreciated property out of a trust, e.g. to the settlor of the trust, will eliminate your ability to complete swaps. Under current law, you could swap cash into an irrevocable trust and take back an appreciated asset of equivalent value with no adverse tax consequences. This technique could bring a highly appreciated asset back into your estate to obtain an income tax basis step up on death. If the asset remained in the trust, it would not gain that basis increase, and heirs would ultimately pay a capital gains tax. The new law’s deemed realization of gain on distributions of trust assets would eliminate this valuable and common planning tool, the swap (also referred to as a substitution of assets). Grantor trusts have been the keystone of most estate planning for decades. Critical to the use of grantor trusts was the ability to move assets into and out of the trust without any income tax consequences. That will be eliminated. This one change would alone decimate another popular planning technique, grantor retained annuity trusts (GRATs) (see below). That is because key to many GRATs has been the ability to shift appreciated assets into the GRAT without a tax cost, and for the GRAT to pay you as the settlor appreciated assets to satisfy the annuity that the trust owes you under this technique. That will be eliminated.
Gain On Death Deferral for Family Businesses
Family-owned businesses will be given a safety valve from the new tax on death. They will be permitted to elect to defer the tax on appreciation, with interest, until the business is sold or no longer family-operated. But to get this benefit the IRS can require security for the payment deferred. This appears to mean that the IRS could place a lien on business assets to secure the payment of both the income tax and estate tax due on death. Consider the possible adverse impact of such liens on financing family business operations, etc. These dual costs on death, especially for an illiquid asset like a family business, may create a significant incentive to use life insurance to provide liquidity. But even using life insurance could be more nettlesome then under current law. The many other restrictions in the Biden budget proposal will restrict if not undermine the use of life insurance trusts commonly used when insurance policies are purchased as part of an estate plan. Grantor trusts will be restricted, annual gifts (as discussed below will be capped at $50,000/year), and GRATs (which have been used to funnel assets into insurance trusts) will be impractical. The result of these and other changes is to make the traditional life insurance held in an insurance trust approach limited.
Periodic Gain Recognition for Trusts
The Biden proposal provides for a forced recognition event for property held in trust every 90 years. At year 90 any appreciation on the value of assets held in a trust will automatically have to be realized and income tax paid even if no sale or other transaction occurred. Transition rules have been provided for older trusts so that they will not be able to wait a full 90-years as new trusts will be able to do. For example, for trusts created before 1944, they will have to report gain in about nine years. The tax rate may be the new 39.6% maximum tax rate on individuals plus the 3.8% net investment income tax. That is almost 44%, and if there is state and local tax, the marginal overall rate could be 50%+. Most state income tax systems follow the federal rules. So if a gain is imputed in year 90 on a federal level, it will likely be deemed to have occurred from state income taxes as well. Some trustees may choose to move trusts out of high-tax states years before the gain-triggering event to at least try to avoid the state income tax even if they cannot mitigate the federal imputed income tax.
You should consider when creating a new trust that the it should be a trust that lasts as long as possible, that has situs in a trust and tax-friendly state, and that has domestic asset protection trust (DAPT). These states have more favorable laws, robust and flexible administrative trust companies, etc. Examples are Alaska, Nevada, South Dakota, Delaware, Tennessee, and New Hampshire. When preparing your estate plan as we advance, consider using a revocable trust instead of a will being your primary dispositive document. That may make moving a trust formed at your death (a testamentary trust) to a state with favorable trust income tax rules easier. This is because you should not need court approval to make any kind of change or change the trust's situs. Note that retirement assets cannot be transferred to a revocable trust without triggering gain. Other assets, like professional corporations, may face legal restrictions on transfer to a trust.
With the prospect of an approximately 40% income tax on trust income, the ability to shift wealth down generations will be substantially limited. This will inhibit dynastic planning that has been one of the themes of estate planning for decades.
Who is an Executor
Under current law, gaps, confusion, and inconsistency can exist regarding who is the personal administrator or executor to take certain actions on behalf of an estate. That has created administrative difficulties for both taxpayers and the IRS. The new law would allow the executor to do anything regarding the decedent's tax liability on behalf of the decedent.
Special Use Valuation
For farmland and certain real estate used in a closely held family business current law permits that property to be valued using special rules that will reduce the estate tax value. The purpose of this is to reduce the need to liquidate family farms or real estate used in a family business to pay estate tax. But under current law this benefit is capped at about $1.4 million of property. The new law, and this is one of the few favorable changes proposed in President Biden’s budget, will increase this amount to $14 million. That is $28 million for a married couple. There are strict and detailed requirements that have to be met to qualify for this opportunity. For example, it must actually be a working farm. This benefit may be so significant, especially if the estate tax exemption is cut in half in 2026 to about $7 million; anyone owning property that might qualify may focus on planning to qualify. Further, it may even become worthwhile for others to invest in such assets if they can realistically qualify for this enhanced tax break. Consider that the average value of a family farm might only be about $2.5 million.
Consider how the Biden budget proposal disparately affects different types of assets. Some asset classes are better, others not. Collectibles are going to be a real issue with the potential to trigger tax on gifts. Section 1202 corporate stock and farmland could be especially beneficial assets to own. This will make planning more nuanced and complicated, and in many cases unfair as between different taxpayers.
Trust Reporting
If you have more than $300,000 in a trust, or gross income in excess of $10,000, new trust reporting rules will apply. These thresholds are so modest that virtually every trust will be impacted. Trustees will have to report the value of trust assets to the IRS annually. Taxpayers, trustees, and beneficiaries are all going to be very uncomfortable having to disclose this information. The proposal requires that the trust’s generation skipping transfer (GST) tax inclusion ratio will also have to be reported. That is the portion of the trust that is exempt from generation-skipping transfer tax. For taxpayers who have had qualified advisers preparing proper gift tax returns (Form 709) every year they made gifts, and maintaining trust records, this may not be a significant complication. But for many trusts the trustees and even the CPAs helping with trust income tax returns may not have any idea what this figure will be. Reconstructing it for an old trust could be costly and complicated.
Valuation Adjustment Mechanisms
Much wealth, and hence the focus of much of estate planning, has been the transfer of hard to value assets like interests in a family business or real estate. An issue that occurs with all such property is what is the value? Even if you have your business appraised the IRS could challenge the appraisal of a gift of that business that you make as being wrong. An increase in the gift valuation could result in a 40% gift tax. Taxpayers have tried to avoid that risk but using special valuation mechanisms. Instead of transferring a percentage interest in a business entity, you transfer a fixed dollar amount. That way, if the IRS challenges the value you have only made a gift of that value, not a percentage interest. That should avoid any unintended gift tax. The IRS has long disfavored this mechanism as they assure that if the IRS is successful in an audit, no tax can be collected. The use of these mechanisms makes the administration of the tax system extremely difficult because they spend resources on audit to accomplish nothing. The Biden budget will eliminate the use of these mechanisms. This is all rather unfair as wealthy people transferring interests in marketable securities have no valuation risk. But those transferring interests in real estate or a closely held business do. This is similar to the comment made earlier that there is a considerable difference in how different assets will be treated under the Bide proposal. That will make planning less fair and more complex.
Thus, if you own hard to value assets you should plan before this law becomes effective, Which is the end of the year.
Annual Exclusion Gifts
You are allowed to give away each year $18,000 to as many people as you want. This is referred to as the annual exclusion. If you had 20 heirs you could gift $360,000/year. If you are married, you and your spouse can gift $720,000. If all your heirs are named as beneficiaries of a trust, you can gift the trust that amount, and the trustee can give the beneficiaries notice that they can withdraw the money if they wish. That way, assuming the beneficiaries do not withdraw the money, all of it remains in the trust, and you face no gift tax consequence. The Biden budget will cap annual gifts at no more than $50,000 per donor. So you and your spouse will be limited to giving away $100,000/year or using whatever remains of your lifetime exemption. When that is exhausted future gifts above the $50,000 cap will trigger gift tax. If you have a large insurance plan, it could be difficult to gift enough cash into a trust to pay the premiums after this law change. You should plan for this possibility now. Consider creating Grantor Retained Annuity Trusts (GRATs) that can flow assets into your insurance trust. The Biden proposal will emasculate GRATs so now may be the last time you can use that technique to leverage gifts. Plan on funding any large insurance plans now, because the law will make it very difficult to do it if enacted.
Restriction on Duration of GST Exemption
In the old days (and still in some states), a trust could only last for a limited period of time, for example, 21 years past the death of the last beneficiary alive when the trust was created. However, many states have modernized their trust laws, permitting trusts to last for a very long time. If you create a trust in those states and allocate Generation-Skipping Transfer (GST) tax exemption to that trust equal to the gift amount, the trust can remain outside of the gift, estate, and GST tax systems, perhaps forever.
The Biden budget proposal will limit the duration of a trust GST exemption to, generally, no more than two generations below the transferor (i.e., your grandchild) unless younger generations (e.g., your great-grandchild) are alive at the time of the trust’s creation. This will greatly limit dynastic planning. Existing plans will be substantially altered. There is no grandfathering for pre-existing plans. So, even if you created a trust a decade ago believing it should be outside the estate tax system forever, that just won’t happen. That is because the effective date of this change is the date the new law is enacted.
You might need to revise your will and revocable trust. If those documents pour assets into existing irrevocable trusts they may have a shorter duration than if new trusts are created which may then include heirs born after the lifetime irrevocable trusts were created. That could require your heirs to maintain double the number of trusts adding to costs and complexity.
Also, consider the aggregate impact of the various Biden proposals. GST can only last two generations, distributions from or gifts to trusts will be income tax realization events, and assets you manage to shoehorn into trust with all these limitations will be subjected to a deemed realization and income tax every 90-years. Overall, the Biden proposal will substantially hinder the ability of the wealthy to transmit wealth down the generations. And that no doubt is one of the goals. The government is clearly saying we were not interested in dynastic planning.
Grantor Retained Annuity Trusts (GRATs)
GRATs are an estate planning mechanism that can facilitate your shifting appreciation out of your taxable estate, without incurring gift tax and with limited downside risk if the plan fails. For almost all cases, the Biden proposal will eliminate the use of this technique with various harsh new restrictions. It will require the remainder interest to have a minimum gift tax value equal to the greater of 25% of the value of the assets transferred by you to the GRAT (trust), or $500,000 (but not more than the amount transferred). That alone will make GRATs impractical in most situations. But the proposal goes further. It would also prohibit a GRAT duration or term shorter than 10 years, a term greater than your life expectancy as the annuitant, plus 10 years. Further, there could not be any decrease in the annuity amount paid. Income tax-free exchanges with the trust would trigger income tax. Thus, GRATs will effectively be eliminated for unusual situations. If you could benefit from GRATs (e.g., to leverage value into an insurance trust to meet future premiums because of the restrictions on annual gifts discussed above), you need to complete them before the date of enactment. Since no one can predict that it is basically the sooner, the better. Also, you should plan cash flow to avoid the need to pay annuity in kind.
CCA said that the valuation adjustment mechanism wouldn't work because the taxpayer was in bad faith because they didn't have the appraisal recognize offers that were on the table.
Swap or Substitution of Assets
A hallmark of most grantor trusts is a right given to the person creating the trust to swap assets with the trust. As the grantor to the trust and its deemed owner, this allows you to swap assets of equal value (typically cash) tax-free for trust assets (usually appreciated assets). This puts appreciated assets back into your estate and thereby maximize the value of the “step-up” in basis at death.
For any grantor trust that is not fully revocable, the Biden proposal would treat an asset transfer between the trust and you as the grantor as regarded for income tax purposes. That means taxable. That will make a basis step up on assets inside trusts impossible to achieve. Also, swapping to revise or restructure your estate plan will be impossible. For example, you may have put a business asset into a trust and named certain beneficiaries, the son running the business. Years later, your son changed his mind and wanted to do something completely different. Your daughter, who had nothing to do with the business when the trust was created, is now running the business. Under current law, you can swap the business outside of the trust back into your name, and put different assets in the trust. Then you can do a new plan to get the business to your daughter. You lose a lot of flexibility for personal planning reasons, not just the basic step up with the Biden change.
Review all trusts before enactment and consummate swaps before then.
Again, the big-picture theme of the Biden budget proposal is to restrict almost every technique that estate planners use, indirectly restricting many others, to prevent wealth transmission.
Tax “Burn”
Most trusts created for estate planning purposes are grantor trusts. That means the person who created the trust, not the trust, pays income tax on trust income. That odd-sounding consequence is one of the most powerful wealth-shifting devices. It allows a deemed owner of a grantor trust to pay the income tax attributable to trust assets without incurring gift tax. Biden’s proposal provides that your payment of the income taxes on income earned by an irrevocable grantor trust is a gift deemed to occur on December 31 of the year in which the income tax is paid (or earlier if grantor status terminates). This is yet another restriction/cost that is being created to restrict current estate planning strategies. So in addition to the income tax burn on trust income, you're going to pay a gift tax at 40% on top of that.
Since this new rule only applies to trusts created after the new law is enacted, you should create a grantor trust you might need sooner rather than later.
You could include a tax reimbursement clause in the trust in case the tax costs gets too much for you to bear. But based on a recent IRS ruling, you'd better put that in at inception because if you try to add it later, the IRS will argue that such a step will trigger adverse tax consequences. One of the key problems that produce tax reimbursement is even if you include the clause properly in the beginning of the trust, if you use it too often (which no one can define) the IRS can argue that you had an implied agreement with the trustee to reimburse you, therefore you retain an interest the whole of the trust is back in your estate. Consider using an institutional trustee as that may reduce the risk of this tax problem.
GST Transactions Between Trusts
Say you have a trust that is not GST-exempt. That means that when that trust passes to your grandchildren (skip persons in tax jargon), a Generation-Skipping Transfer (GST) tax could be triggered. But if you can shift the value of a non-GST-exempt trust into a GST-exempt trust, that tax cost might be avoided. How might you do that? The trustee of the non-GST-exempt trust could sell assets it owns to another trust that is GST-exempt for a note. If both trusts are grantor as to you, or the buying trust is grantor as to the selling trust, no income tax should be trigged on the sale. Thereafter, any increase in value of the asset (e.g. a family business) above the interest rate the buying trusts pays the selling trust, could be outside the tax system forever.
This proposal would treat this type of transaction as some type of GST transfer and you would have to re compute the inclusion ratio. This is effective the date of the new law’s enactment. That might suggest completing any such transactions now.
Loans to Trust Beneficiaries
Loans have been a very flexible trust administration tool. It has been common for trusts to loan beneficiaries money for several reasons. In many cases, loaning money can have a tax advantage. For example, if you have a non-GST exempt trust, and you want to provide economic benefit to a lower generation person, a distribution could trigger a GST tax. If the trustee instead loans money to the beneficiary or perhaps buys a personal use asset like a house and lets the beneficiary use it, the tax might be avoided or deferred. It's also been common for a trust that's in a favorable no tax state that wants to provide money to a beneficiary in a high-tax state to loan money to the beneficiary instead of making a distribution.
The Biden proposals will eliminate the above. It will treat loans in the same manner as a distribution so that a portion of trust income based on the value of the amount of all loans and distributions. Once the law is enacted, the trustee can no longer loan a beneficiary without an income tax consequence identical to that of a distribution. The new rule will require that a loan pass out distributable net income (DNI). Since most states follow federal tax law, that may also create taxable income in the state where the beneficiary lives. This will complicate trust administration. Since a loan may also trigger income tax to the beneficiary, if the trustee is trying to get specific funds to a beneficiary the amount loaned or distributed (since they will be treated the same) may have to be increased (grossed-up) to provide the beneficiary enough money to pay the new income tax cost and leave them with enough net funds for the intended purpose (e.g., a down payment on a house). What if a trust has three beneficiaries? One beneficiary wants to buy a home, and the trustee wants to give her a million dollars to buy the home. The other beneficiaries are younger, and the trustee is obviously, logically, concerned about maintaining equality between the various beneficiaries of this pot or sprinkle trust. The trustee might prefer to loan the money to the beneficiary being helped because then if that loan has to come back even with interest, then, in effect, the trustee has arguably not been unfair to the other beneficiaries. But now that the loan will create a negative income tax cost, which has to be factored into the planning as well, maintaining parity between beneficiaries may be more difficult.
Discounts
Under current law, if you make a gift of a non-controlling portion of a business entity or assets, the interest or asset given may be valued at a fraction of the total value. These valuation discounts have been the fuel of much of estate planning. Discounts (and the tax burn discussed above) have been fundamental to how wealthy people have shifted value out of their estates and outside of the estate tax system. The Biden proposal will revise Code Section 2704(b) to provide that the value of any partial interest in closely held business transferred to a family member must be the pro-rata share of the aggregate fair market value. In other words, no more discounts. This restriction will apply to intrafamily transfers of partial interests in property in which the family collectively has an interest of at least 25% of the whole. For purposes of this new rule, family members would include the transferor, the transferor’s ancestors and descendants, and the spouse of each.
If your estate plan might benefit from valuation discounts, you should evaluate consummated that plan before the Biden proposal is enacted.
NOTE: This article was written prior to the change in the Democratic nomination, however, this proposal would likely mirror other democratic candidates proposals.
When it comes to estate planning, many homeowners consider adding their children as joint tenants to their home. This approach has an initial appeal due to its simplicity and the avoidance of probate. However, it's crucial to understand the significant risks and disadvantages that come with this strategy. Let's explore why this might not be the best option for your estate plan.
What is Joint Tenancy?
Joint tenancy is a form of property ownership where two or more individuals hold equal shares in a property. A key feature of joint tenancy is the "right of survivorship," which allows the property to pass automatically to the remaining joint tenants upon the death of one tenant, bypassing probate.
The Initial Appeal of Joint Tenancy
Risks and Disadvantages of Adding Children as Joint Tenants
Alternative Estate Planning Tools
Conclusion
While adding children as joint tenants to a home may seem like an easy and effective estate planning strategy, it comes with significant risks and disadvantages, such as loss of control, exposure to financial liabilities, and adverse tax implications. Alternatively, using a revocable living trusts offers more control, protection, and tax benefits.
Consulting with an estate planning attorney is crucial to fully understand the implications of different property transfer strategies and to tailor a plan that aligns with your personal and family goals. An attorney can provide expert advice on the best methods to achieve your estate planning objectives while minimizing risks and maximizing benefits.
Planning your estate is about making informed decisions that protect your assets and ensure your wishes are carried out. Taking the time to explore all options will provide peace of mind for you and your loved ones. Contact the attorneys at Jeffrey Burr. We have been serving the Las Vegas community for more than 40 years and we will be happy to help you.
In the fast-paced world of entrepreneurship, decisions about where to establish your business can significantly impact its success. Lately, there's been a surge of interest in incorporating businesses in Nevada, and it's not just due to the state's stunning landscapes and vibrant cities. The “Elon Musk Effect” has been a driving force behind this trend, as more entrepreneurs are drawn to the benefits that Nevada offers for business incorporation.
Elon Musk, the visionary CEO behind companies like Tesla and SpaceX, has long been associated with innovation and success. His decision to establish a significant presence in Nevada has not gone unnoticed. In a recent article by the Las Vegas Review Journal, aptly titled "The Elon Musk Effect: Why more businesses want to incorporate in Nevada," it was noted that “There were more than 108,000 business entities registered in Nevada in 2023, a roughly 150 percent increase from 2019, according to data from the Secretary of State’s Office.”
Musk's endorsement of Nevada as a favorable destination for business incorporation underscores several key benefits that the state offers:
Tax Advantages
One of the most compelling reasons for incorporating in Nevada is its favorable tax environment. With no state income tax, no franchise tax, and no corporate income tax, businesses can retain more of their profits, allowing for greater investments and growth opportunities.
Legal Protections
Nevada boasts robust legal protections for business owners, including strong asset protection laws and privacy provisions. These protections offer entrepreneurs peace of mind, knowing that their assets are safeguarded in the event of legal disputes or financial challenges.
Business-Friendly Regulations
Navigating regulatory requirements can be a daunting task for business owners. Fortunately, Nevada has a reputation for its business-friendly regulatory environment, making it easier for companies to operate and thrive. From streamlined incorporation processes to supportive government initiatives, Nevada fosters an environment conducive to business success.
Access to Resources
In addition to its favorable business climate, Nevada offers access to a skilled workforce, as well as various resources and incentives for businesses. From business incubators to economic development programs, entrepreneurs have access to the support they need to grow and prosper.
While the benefits of incorporating in Nevada are clear, navigating the incorporation process can be complex. That's where Jeffrey Burr can help. With experience in business law and a deep understanding of Nevada's regulatory landscape, The Law Firm of Jeffrey Burr is uniquely positioned to assist entrepreneurs and business owners in incorporating their businesses and maximizing their benefits.
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