2016 year end update at a glance
This publication offers a timely roundup of estate and trust planning tips, information and news, courtesy of Gunster’s private wealth services attorneys; please contact any team member for more information.
In this year end review:
- Election brings a variety of significant potential tax changes
- 2017 estate, gift, and GST tax exemptions and exclusions
- Regulations could effect valuation discounts
- New guidance on leaving New York for tax purposes
- Digital Assets Act
- Tax free gifts to Pulse victims
- IRS trying to counter scam artists
- Unforeseen circumstances guidance for home sale
- LLC owners must be careful with S corp elections
- Review your plan and monitor changes
Election brings potential tax changes
For the first time since 2006, a Republican President will be in office with a Republican-controlled House of Representatives and Senate. The results of the 2016 elections will very likely have a significant impact on the tax environment faced by wealthy individuals, families and closely held businesses.
Exemptions and exclusions increase for 2017
Lifetime gifts are particularly beneficial from an estate tax planning perspective, as all post-gift appreciation accrues outside of the donor’s transfer tax base. When making lifetime gifts, it is important to consider the tax exemptions and exclusions that are currently available. Under current law, the lifetime gift (and estate) tax exclusion amount and the Generation Skipping Transfer tax exemption amount is $5,450,000 for 2016 and these exclusions and exemptions will increase in 2017 to $5,490,000.
IRS proposes regulations effecting valuation discounts
You have almost certainly never heard of Section 2704 of the Internal Revenue Code or the new Proposed Regulations applicable to Section 2704 but they are very important in the context of wealth transfer planning and they also serve as a backdrop for a sign of the modern political times.
New York seeking tax from "former" residents
People have been taking steps to change their tax residency from northern states to Florida for just about as long as Florida has had air conditioning and mosquito control districts. New York, however, understandably tries to take steps to capture tax from its departing residents whenever it can justify doing so. In July of 2016, the New York Tax Appeals Tribunal issued a ruling that a taxpayer was liable for significant New York State tax because he did not change his domicile from New York to Florida for purposes of New York law as he had claimed despite having extensive connections to Florida.
Florida enacts law governing access to digital assets
After a good deal of debate and undoubtedly no shortage of bargaining with powerful online service providers, Florida finally enacted law covering access to digital assets by others – the Florida Fiduciary Access to Digital Assets Act. This Act allows an individual to grant access to his or her “Digital Assets” upon death or incapacity. Digital Assets are electronic records in which someone has a personal interest or right and include digital photographs, files stored in the cloud, electronic bank statements, social media or social network accounts, and, importantly, electronic communications and records such as emails.
IRS confirms Pulse victim payments are not income
The IRS Commissioner has stated in a letter to Representative, and recent Senatorial candidate, Patrick Murphy that payments made to victims of the horrific mass shooting at the Pulse nightclub in Orlando, Florida do not represent taxable income to those victims regardless of who is the donor.
IRS takes some basic steps to combat scam artists
Due to the epidemic of identity theft and phone scams, the IRS has directed its employees to move away from making initial contact with a taxpayer via phone calls. The IRS’s preferred procedure will now be to first send letters via mail to initiate contact.
IRS rules that the arrival of second child qualifies as an unforeseen circumstance
The Internal Revenue Code provides that taxpayers may exclude up to $250,000 ($500,000 for married taxpayers filing a joint return) of gain on the sale of a home if the property was owned by them for at least 2 of the past 5 years and also was used by them for 2 of the past 5 years. The Internal Revenue Code also provides that taxpayers may exclude some of the gain if the sale is caused “by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances” even if the taxpayers do not meet the standard requirements.
Make sure your LLC taxed as a subchapter S corporation avoids partnership provisions in its operating agreement
Many of our clients make use of limited liability companies (“LLCs”) to hold assets and conduct businesses. LLCs are so popular because they are relatively easy to use, provide limited liability protection and offer flexibility in the manner in which they are taxed. For example, an LLC owned by two individuals may be taxed as a partnership or a Subchapter S corporation for federal income tax purposes. This type of flexibility, however, offers a trap for the unwary and a recent IRS ruling highlights this trap.
Estate plan review and monitoring changes in the law
We recommend that you review your estate plan periodically to ensure it is updated taking into account your current family situation, your current asset structure, your dispositive wishes, the tax provisions currently in effect, and your trustee selections. As new legislation unfolds, it will be critically important to address these changes with your advisors and determine how they will impact you and your family. You should also check to make sure that your assets are properly titled so that your estate plan operates as intended.
In this Year-End Letter, we have deliberately simplified technical aspects of the law in the interest of clear communication. Under no circumstances should you or your advisors rely solely on the contents of this Year-End Letter for legal advice, nor should you reach any decisions with respect to your personal tax or estate planning without further discussion and consultation with your advisors.
