Recent Estate Planning Developments 2023

On the first day of the 58^th Annual Heckerling Institute on Estate Planning, the recent development session featured Turney P. Berry of Wyatt, Tarrant, & Combs, LLP; Ronald D. Aucutt of Bessemer Trust; and Carlyn S. McCaffrey of McDermott Will & Emery LLP. Below is a summary of the key recent developments.

The first key development addressed was the Corporate Transparency Act (“CTA”) and the reporting deadlines that were effective January 1, 2024.  To summarize, all entities doing business in the U.S., unless exempted, must report “Beneficial Ownership Information” with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  Penalties for failure to comply are steep, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. The proposed regulations and the final regulations, which were published on November 30, 2023, addressing the CTA reporting extended the time for reporting.  Specifically, those rules include the following:

• Companies created or registered before 2024 will have until January 1, 2025, to file their initial reports with FinCEN.
• Companies created or registered in 2024 will have 90 days to file their initial reports, instead of 30 days.
• Reporting companies created or registered on or after January 1, 2025, will have 30 days to file their initial reports.

The panel pointed out that the CTA applies to trusts, and, in the case of trusts, the reporting rules can be quite complex as to who is required to file (e.g., trustee, beneficiary).

After a discussion of the CTA, the panel focused on CCA 202352018, which was released on December 29, 2023.  In this CCA, the IRS ruled that the following constituted a taxable gift by the trust beneficiaries: modifying an irrevocable grantor trust with the beneficiaries’ consent to include a tax reimbursement clause that permits the trustee to reimburse the grantor for the income tax attributable to the inclusion of the trust’s income in the grantor’s taxable income.   This CCA noted that it is distinguishable from Rev. Rul. 2004-64 in which the IRS previously ruled that the inclusion of a tax reimbursement clause in a trust’s original governing instrument would not cause the trust assets to be includible in the grantor’s estate. Furthermore, a footnote in the CCA states that the conclusions in PLR 201647001, which took a position contrary to the CCA, no longer reflect the position of the IRS.  Regardless, the panel pointed out the complexity of determining the value of the gift in the case of the CCA.

The panel then addressed another important development that occurred on December 13, 2023, when the U.S. Supreme Court granted certiorari to review the decision of the Eighth Circuit in Connelly v. Internal Revenue Service. This case dealt with the impact of corporate-owned life insurance used to fund a buy-sell agreement on the estate tax value of the redeemed shares in the deceased shareholder’s estate.   The District Court included the value of the life insurance when valuing the stock, and the Eighth Circuit affirmed the decision.

Practitioners need to be aware of these important developments.