Wealth Management Update – Wealth Management

June 2021 interest rate for sales to defective grantor trusts, intra-family loans, interest-shared charitable trusts, and FREEs

The Federal Applicable Rate in June (“AFR”) for use with a sale to a defective cedor trust, an automatic remittance note (“SCIN”) or an intra-family loan with a 3 to 9 year term note ( the term, compounded annually) is 1.02%, compared to 1.07% in May.

The June rate for Section 7520 for use with estate planning techniques such as CRTs, CLTs, QPRTs, and FREEs is 1.2%, unchanged from May. The still low Section 7520 rate continues to present potentially rewarding opportunities to fund the FREEs in June with depressed assets expected to perform better in the years to come? but note that rates appear to be up from the mid-pandemic low of 0.4%.

The AFRs (based on the annual composition) used in the context of intra-family loans are 0.13% for loans with a term of less than or equal to 3 years, 1.07% for loans with a term of between 3 and 9 years and 2.16% for loans with a term of more than 9 years. Note that while the rates for loans with terms of less than 3 years have remained relatively stable since the start of the year, the rates for loans with terms of 3 to 9 years or greater than 9 years have both increased each year. month of this year. .

American Family Plan (AFP)

On April 28, 2021, President Biden released his American Families Plan (AFP). AFP includes a number of tax proposals, including:

  1. Raise the top tax rate from 37% to 39.6% (although it is not clear what the precise income thresholds would be, the White House says it would apply to the “1% of Americans. the most rich “).
  2. Tax long-term capital gains as ordinary income for any taxpayer with annual income greater than $ 1 million.
  3. Eliminate the base increase on death for any gain over $ 1 million (although there is an exclusion for family businesses and farms that pass through to heirs who continue to run the business).
  4. Allocate additional resources to the IRS to improve tax audits of households with more than $ 400,000 in income.

Revision of publication 590-B

Before the SECURE Act came into effect at the end of 2019, an individual beneficiary who inherited an IRA could meet the required minimum distribution by spreading annual payments over the life of the beneficiary. For IRA owners who died after 2019, the SECURE Act replaced this ability to extend payments with a 10-year payment rule that requires the entire IRA to be paid by the 10th.e anniversary of the death of the owner of the IRA. Some beneficiaries are exempt from this 10-year limit and are allowed to follow the old rules and calculate the RMD based on the beneficiary’s life expectancy. The five categories of beneficiaries that escape this rule are: (i) surviving spouses; (ii) a person who is not more than 10 years younger than the owner of the IRA; (iii) a minor child of the owner of the IRA; (iv) a disabled person; and (v) a person suffering from a chronic illness. No provision of the SECURE Act required annual withdrawals, only that it would be exhausted within the 10e year. As such, it was believed that the 10-year rule did not require an annual RMD, as long as everything was paid for by the 10e anniversary. There was some confusion about this late last month, when the IRS released the 2020 version of publication 590-B. There was an example on page 12 that suggested that the 10-year rule required RMDs:

Example. The owner passed away in 2020 at the age of 80. The owner’s traditional IRA went to his estate. The account balance at the end of 2020 was $ 100,000. In 2021, the minimum distribution required would be $ 10,870 ($ 100,000 9.2). (Owner’s life expectancy in the year of death, 10.2, reduced by 1.) “

An IRS spokesperson confirmed that this example was an error and that the error will be corrected with an updated version. It is not known when this fix will be made, but the fix will be consistent with the material in the “What’s New” section of publication 590-B, which also states that the IRA should simply be sold out by the end of the 10e year after the death of the owner of the IRA.

Memorandum from Chief Counsel 202118008

In this case, when the deceased passed away, three trusts were created. One of the trusts was funded with the remainder of the deceased’s estate. The trust ordered that all income be distributed to the spouse at least once a year and authorized distributions of capital for the health, maintenance and support of the spouse’s usual way of life. It gave the spouse limited power of appointment in favor of the descendants of the deceased, and in the absence of that appointment, the remainder would be distributed entirely to the children of the deceased. The spouse, as the personal representative of the deceased’s estate, made an election under the QPIP and claimed a matrimonial deduction for the value of the trust.

A few years later, the spouse made an agreement with the children. In that deal, the children agreed that the trust assets “could be used more efficiently” by the spouse holding the assets outright. Under the terms of the agreement, the trust was converted and all of its property was distributed to the spouse. Paragraph 3 of the Agreement stated:

“By signing this Agreement and by virtue of the PAQT’s election for the Trust, the switching of the Trust results in a deemed gift, for federal gift tax purposes, of the residual interest in the assets of the Trust. Trust of [Spouse] at [Children] under section 2519 of the Code. By virtue of the distribution of all the assets of the Trust to [Spouse], the commutation of the trust does not result in a deemed gift of [Spouse’s] interest on the income of the Trust under section 2511 of the Code. Further, by signing this Agreement and by virtue of the distribution of all assets of the Trust [sic] at [Spouse], the conversion of the Trust gives rise, for federal gift tax purposes, to the residual interest in the Trust of [Children] at [Spouse]. The deemed gift of residual interest of [Spouse] at [Children] and the gift of
[Children] at [Spouse] results in a reciprocal gift transfer. “

This switching resulted in separate tax consequences on the donations for the spouse and for the children. Under Section 2519 (a) and (b), the disposition of all or part of a qualifying lifetime income interest in any property for which a marriage deduction has been authorized is to be treated as a transfer of all interest in that property other than interest qualifying income. Under section 2511, the spouse was considered to be donating all of the interest in the trust other than the qualifying income interest. In addition, the children were considered to be donating under section 2511 to the spouse. Because, under the terms of the Agreement, all of the trust assets were transferred to the Spouse, the Children effectively gave up their residual interests without full and adequate consideration. Under Commissioner c. Wemyss, 324 US 303 (1945), adequate and complete consideration is that which replenishes or increases the donor’s taxable contractual consideration with estate value in the hands of the donor is not sufficient.

These were treated as separate gifts by separate donors who do not offset each other as reciprocal gifts. Since the children received nothing in return for their residual interest, what resulted from this transaction was a one-sided gift from the children to the spouse.

In the case of the Boniface petition, NY Div. tax appeals, ALJ, Dkt n ° 829018, 04/29/2021

An Administrative Law Judge (ALJ) upheld the Division of Taxation ruling that taxpayers were domiciled in New York State and not Florida for the 2014 tax year. ALJ concluded that well Whether taxpayers bought a home in Florida, filed for a homestead exemption in Florida, and obtained Florida driver’s licenses, their “general habits” did not warrant a change of domicile.

The taxpayers kept their domicile in New York, which shows a lack of intention to change domicile. Taxpayers have claimed that most of their time spent in New York City in 2014 was spent at the homes of their children and grandchildren, but there was no timely, credible evidence to support this claim. When determining a change of domicile when an individual has two residences, the time that the individual spends at each location is also important. In this case, based primarily on taxpayer cellphone records, it was proven that taxpayers spent more time in New York than in Florida in 2014 and were in New York for almost half of the year.

Additionally, the taxpayer’s evidence consisted of largely unsworn hearsay testimony, images without statements or testimony, and a timeline that did not conform to other documents and cell phone records. As such, taxpayers failed to meet their obligation to prove a change of domicile and were considered residents of New York for the 2014 tax year.

Update on wealth management

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

Copyright © 2021 onepayday.com | All Rights Reserved