Monthly Archives: July 2025

The United States Congress has cast its vote in favor of “The One Big, Beautiful Bill” (OBBB), a sweeping tax reform initiative designed to overhaul the U.S. tax code. This legislation encompasses a myriad of tax provisions, including the permanence of several existing measures, the repeal and modification of various others, and the introduction of new tax provisions. After extensive deliberations and negotiations among Republican lawmakers over the past several months, a consensus was ultimately reached on a version that garnered the necessary support to pass both the House of Representatives and the Senate. President Donald J. Trump is poised to sign the OBBB into law imminently.

Key provisions of the OBBB include:

1. Business Tax:
   • Enhanced flexibility for domestic R&D costs, allowing immediate deductions or varied amortization options.
   • Reinstatement of 100% first-year “bonus depreciation,” an increase in the Section 179 deduction cap to $2.5 million, and the addition of a 100% depreciation allowance for certain commercial real property.
   • Makes the 199A (QBI) deduction provisions permanent and keeps the deduction rate of 20%.
   • Expansion of business interest deduction and modification to excess business loss calculation.
   • Permanent renewal of the QOZ program with modified eligibility and reporting requirements.
   • New incentives for rural and agricultural investments, plus expanded low-income housing tax credits and permanent extension of the New Markets Tax Credit.
   • Temporary increase in the SALT cap.
   • Three significant expansions to qualified small business stock (QSBS) benefits under Section 1202.
   • Spaceports treated like airports under exempt-facility bond rules. 
2. Employee Benefits:
   • Enhancement of paid Family and Medical Leave credits.
   • New ACA requirements for eligibility verification.
   • New restrictions on Employee Retention Credit (ERC) claims and changes to the statute of limitations. 
3. International Tax:
   • Adjustments and modifications to the applicable rules for foreign tax credits, foreign-derived intangible income (FDII), global intangible low-tax income (GILTI), and base erosion anti-abuse tax (BEAT).
   • Changes rate of tax for FDII to 33.34%, GILTI to 40% and BEAT to 10.5%. 
   • Modifies the determination of deemed paid credit for taxes properly attributable to “tested income” under subpart F inclusions from 80% to 90%. 
   • Changes sourcing rules for certain income from the sale of inventory produced in the United States. 
   • Permanently extends the look-thru rule for related controlled foreign corporations. 
   • Restores the limitation on downward attribution of stock ownership in applying constructive ownership rules. 
   • Imposes a 1% remittance tax on certain cross-border transfer transactions. 
   • Includes a new Section 951B tax regime named the “Foreign Controlled U.S. Shareholders.” 
   • Repeals the election for 1-month deferral in determination of taxable year of specified foreign corporations under Section 898(c) (effective after November 30, 2025). 
   • Modifications to pro rata share rules under Section 951 (effective after December 31, 2025).
4. Estate and Gift Tax:
   • Permanent increase in the unified credit and GSTT exemption threshold from $10 million to $15 million per individual, indexed for inflation.

Key Elements of The One Big, Beautiful Bill

Business Tax Provisions

Research and Development Tax Benefits

Under current law, domestic research and development (R&D) expenditures must be capitalized and amortized over five years. The OBBB revises this by offering taxpayers increased flexibility and choice. For domestic R&D expenses incurred in tax years beginning after December 31, 2024, taxpayers may now elect to (1) immediately deduct R&D costs in the year incurred, or (2) capitalize and amortize costs over the useful life of the research (not less than 60 months).  However, current law treatment of foreign R&D costs (capitalization and amortization over 15 years) is not changed. 

In addition to expenses and capitalization, there are also favorable tax credits for qualifying R&D activities and small businesses. These include allowing businesses to claim a larger credit for qualifying R&D activities, which now includes a broader definition of eligible expenses, such as software development and certain types of engineering and design work. The OBBB also allows small businesses and startups to receive refundable credits, meaning companies can receive cash returns even if they have not yet generated taxable income.
Bonus Depreciation, Qualified Production Property and Section 179 Expansion

The OBBB modifies the existing bonus depreciation provisions, which currently only allow businesses to deduct 40% of the purchase price of qualifying assets in the year of acquisition. The adjustments include an increased deduction percentage as well as an extension of eligibility. The amended bonus depreciation provisions reinstate and make permanent 100% first-year depreciation for qualified property acquired and placed in service after January 19, 2025, with a transitional election to utilize reduced percentages for property acquired prior to that date and placed in service during a taxable year ending after that date.  There are no retroactive changes to bonus depreciation for the 2023 and 2024 tax years. 

In addition to bonus depreciation, another elective 100% depreciation allowance is added for qualified production property (QPP) placed in service through 2030. QPP covers newly constructed and certain existing non-residential real estate used for manufacturing, production, or refining of certain tangible personal property in the US. This new depreciation allowance generally applies to property (1) the construction of which begins after January 19, 2025 and before January 1, 2029 or (2) the acquisition of which occurs after January 19, 2025, although in both cases there are additional requirements that must be met. 

Apart from bonus depreciation, a Section 179 deduction may be allowed for investment in qualified equipment and certain other assets subject to limitations (the “Section 179 deduction cap”). The OBBB increases the Section 179 deduction cap from $1 million to $2.5 million, with phase-outs beginning at $4 million for property placed in service after December 31, 2024.

199A QBI Deduction

The OBBB makes the Section 199A deduction permanent. It also keeps the deduction rate at 20% and limits the phase-in range for certain businesses by increasing the amount from $50,000 to $75,000 for non-joint tax returns and from $100,000 to $175,000 for joint returns.

Finally, the OBBB proposes an inflation-adjusted minimum deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trade or businesses in which they materially participate.

Business Interest Deduction

Under current law, taxpayers are generally allowed to deduct business interest expense only to the extent of business interest income plus 30% of adjusted taxable income (ATI) plus floor plan financing interest. The higher the calculation of ATI, the higher the amount of deductible business interest. The OBBB increases the amount of business interest expenses that taxpayers will be allowed to deduct by removing depreciation, amortization and depletion deductions from the calculation of ATI.  Finally, the definition of “motor vehicle” is amended to allow the deduction of interest on floor plan financing for certain trailers and campers.

Excess Business Losses

The OBBB makes permanent the excess business loss limitation, which limits the amount of aggregate business deductions that a noncorporate taxpayer is allowed to deduct to the amount of aggregate gross income or gain attributable to trades or businesses of the taxpayer plus a threshold amount. The threshold amount is indexed for inflation ($313,000 for 2025).  The OBBB also modifies the way in which aggregate business deductions will be calculated by adding to that amount any “specified loss,” defined as an excess business loss disallowed under Section 461(l) for a taxable year beginning after December 31, 2024.

Renewal of Qualified Opportunity Zone Program

The Qualified Opportunity Zone (QOZ) program was created to stimulate economic development in distressed communities by offering tax incentives to investors who invest deferred capital gain in QOZs. The OBBB makes the QOZ program permanent with rolling ten-year QOZ designations,  modified eligibility requirements and additional tax return and information reporting requirements.

New Rolling Ten-Year QOZ Designations: Effective as of July 1, 2026 (the initial “decennial designation date”), Governors will designate new QOZs, which will then be in effect for 10 years (i.e., the first set of designations will be in effect from January 1, 2027, through December 31, 2036). On the tenth anniversary of each successive decennial designation date, Governors will designate new QOZs, which will be in effect for ten years. For example, on or before July 1, 2036, Governors will designate new QOZs, which will be in effect from January 1, 2037, through December 31, 2046. The OBBB modifies the requirements applicable to the designation of a QOZ by narrowing the definition of a low-income community. Also, special designation benefits for Puerto Rico have been eliminated.

Tax Incentives for Investing Under New QOZ Program: Deferred gain invested prior to January 1, 2027 will be recognized on December 31, 2026. That date has not been extended.

Taxation of capital gain invested in a Qualified Opportunity Fund (QOF) on or after January 1, 2027, will be deferred until the earlier of the date of disposition of such investment or five years from the date of the investment in a qualified opportunity fund. Once the investor holds its interest in the fund for five years, the investor obtains a 10% basis increase, which will ensure that only 90% of the deferred gain is taxed if the investment is held for at least five years. For investments in newly created qualified rural opportunity funds, 30% of the deferred gain is added to basis.

Under the new provisions, if a QOF investment is held for at least 10 years and up to 30 years, no tax is imposed on gain realized when the investment is sold or exchanged.

New Tax Return and Information Return Requirements: The OBBB imposes comprehensive reporting and tax return requirements on new and existing QOFs and OZ businesses. Increased penalties are added to ensure compliance.

The provisions in the OBBB leave a number of questions unanswered, including whether and how existing OZ businesses and projects are grandfathered once QOZ designations expire.

SALT Cap Increase

The deduction limit for payment of state and local taxes (the SALT cap) is temporarily increased from the current $10,000 to $40,000. That amount will then be adjusted for inflation, starting with $40,400 in 2026 and increased by 1% annually through 2029. In 2030, the deduction limit reverts to $10,000. However, the amount of the available deduction does phase down for taxpayers with a modified AGI of over $500,000, adjusted annually for inflation with a floor of $10,000.

QSBS Expansion

The OBBB includes three significant expansions to Section 1202, the exclusion of gain recognition for the sale of qualified small business stock (QSBS):

1. The required holding period for QSBS benefits for stock acquired after the applicable date would be reduced from 5 years to 3 years, with 50% benefits phasing in beginning after a three-year holding period. A four-year holding period rises to 75%, and a five-year holding period receives the full 100% exclusion. 
2. $15 million (up from $10 million) of gain from stock acquired after the applicable date could be excluded. Note, however, that the 10x basis rule does not change, so the exclusion will apply to the greater of $15 million or 10x the taxpayer’s basis.
3. The permitted gross assets limit increases from $50 million to $75 million.

Expanded Availability of Low-Income Housing Credits

The low-income housing credit was adopted to incentivize the construction and rehabilitation of affordable rental housing for low-income families. The federal government allocates tax credits to state housing agencies, which then award credits to private developers for construction of affordable rental housing projects. The OBBB includes provisions to reform the credit and its eligibility requirements, which expand the tax credits that can be issued.

Increase State Housing Credit Ceiling Amount: By increasing the credit ceiling, the OBBB increases the amount of available credits.

Modify tax-exempt bond financing requirement: The OBBB allows additional buildings financed with tax-exempt bonds to qualify for housing credits without receiving a credit allocation from the State housing credit. 

Permanent Extension of New Markets Tax Credit

Current law includes a New Markets Tax Credit (NMTC). The NMTC permits individual and corporate investors to receive a credit against their federal income taxes for making certain equity investments in qualified Community Development Entities (CDEs).  CDEs provide investment capital for low-income communities. The NMTC is set to expire at the end of 2025.  The OBBB permanently extends the NMTC.

Exclusion of Interest on Loans Secured by Rural or Agricultural Real Property

Partial Tax Exclusion for Interest Income: The OBBB excludes from gross income 25% of interest income from qualified real estate loans received by FDIC insured banks, domestic entities owned by a bank holding company, state or federally regulated insurance companies, domestic subsidiaries of insurance holding companies or Federal Agricultural Mortgage Corporation (Farmer Mac).

Expansive Scope of Qualified Real Estate Loans: The partial exclusion applies to loans secured by (1) domestic farms and ranches substantially used to produce agricultural products, (2) domestic land substantially used for fishing or seafood processing, (3) any domestic aquaculture facility or (4) any leasehold mortgage for such property.

Employee Benefit Provisions

The OBBB includes a handful of provisions affecting retirement and welfare benefit plans, which include:

Treatment of Direct Primary Care Service Arrangements in Health Savings Accounts

Effective for months beginning after December 31, 2025, direct primary care service arrangements are not considered health plans and thus will not exclude an employee from qualifying for an HSA. A direct primary care service arrangement is medical care by primary care practitioners in exchange for a fixed periodic fee of no more than $150 per month per employee ($300 if multiple individuals are covered). Services excluded from this arrangement are procedures requiring general anesthesia, prescription drugs and laboratory services. In addition, fees paid under a direct primary care service agreement are treated as medical expenses and thus exempt from the prohibition that HSAs cannot pay for insurance.  

Changes to Health Savings Accounts Concerning Bronze and Catastrophic Plans 

Also effective for months beginning after December 31, 2025, health savings accounts will treat bronze level and catastrophic health plans as high-deductible health plans. As HDHPs, participants in such plans now qualify for HSA plans.  

Enhancements and Extension of Paid Family and Medical Leave

The OBBB makes permanent paid medical leave and the tax credit under Code Section 45S, initially put in place by the TCJA. Employers that choose to offer paid family and medical leave can offset the costs of this benefit with credits against wages up to a percentage of the employee’s wages covered by the employer. If the employer has an insurance policy for such benefits, the credit is the percentage of the benefit applied against total premiums paid for such insurance. To qualify, an employer must have a written family leave policy, but the employer will remain eligible if it has a “substantial and legitimate business reason” for failing to have a written policy in place. Also, family leave benefits which are either mandated by State or local law or paid by State or local government cannot be considered for purposes of the credit under Code Section 45S, nor can the employer take both a business deduction for family leave insurance premiums and apply the credit under 45S. This provision is effective for taxable years beginning after December 31, 2025.      

Requiring Verification of Eligibility under the ACA Exchanges  

Effective for taxable years beginning after December 31, 2027, individuals acquiring health insurance through an Exchange are subject to pre-enrollment verification of the individual’s eligibility to enroll in the plan and to receive advance premium payments. Coverage for prior months is available in limited circumstances. Also, unless the applicant is enrolling during a special enrollment period because of a change in family size, verification includes the months prior to the date of application if the applicant applied for advance premium payments for the prior period. Information provided by the individual must include affirmations of household income and family size, whether the individual is an eligible alien, health coverage and eligibility status, and place of residence. Failure to meet verification and affirmation requirements does not make the individual ineligible to enroll in an Exchange plan, only ineligible for ACA premium assistance. In addition, by August 1 of each year, an Exchange must provide verification of the individual’s eligibility to re-enroll in the following year. Finally, the Act gives the Exchange permission to use reliable third-party sources to collect verification information.   

Disallowing Premium Tax Credits for Certain Coverage Enrolled in During Special Enrollment Periods 

Effective for plan years beginning after December 31, 2025, under the ACA a qualified health plan will not include a plan enrolled in during a special enrollment period provided by the Exchange on the basis of the individual’s expected household income in relation to a certain percentage of the poverty line, and which is not connected to an event or change in circumstances specified by the Secretary for Health and Human Services. 

Eliminating the Limitation on the Recapture of Advance Payment of Premium Tax Credit 

Effective for taxable years beginning after December 31, 2025, the OBBB removes the limitation on the amount of tax imposed for excess tax credits under the ACA (for example, in the event of increased household income). Under the amendment to the Code, an individual’s tax liability would increase by the excess, if any, of the sum of the advance payments made on behalf of the taxpayer over the sum of the credits the taxpayer would actually be eligible for based on their income.     

Enforcement Provisions With Respect to COVID-Related Employee Retention Credits 

Effective as of the date of enactment, the OBBB modifies IRS enforcement of COVID-related employee retention credits (ERC) regarding the advice given, refunds, assessments, and claims on credits. Two important ERC provisions are:    

Denial of Refunds Filed After January 31, 2024: The OBBB provides that ERC claims filed after January 31, 2024, are disallowed, regardless of whether such claims were timely and validly filed under existing law. The earliest date the statute of limitations expired for filing ERC claims was April 15, 2024, thus, bona fide claims filed by businesses and tax-exempt organizations related to both calendar years 2020 and 2021 will be denied.

Extension of Statute of Limitations: The OBBB also extends the statute of limitations on IRS assessments relating to the ERC to six (6) years for all applicable calendar quarters. The six (6) year period runs from the latter of (i) the date the original return was filed, (ii) the date the return is treated as filed under Code § 6501(b), or (iii) the date on which the claim for credit or refund for the ERC was made.  While some employers claimed the ERC on their original quarterly Form 941, a substantial number of employers claimed the ERC by subsequently filing an amended Form 941-X for the applicable calendar quarter(s) in which they qualified. Accordingly, the OBBB substantially extends the statute of limitations for the majority of employers who claimed the ERC.

International Tax Provisions

Extension and Modification of Tax Cuts and Jobs Act Provisions

The OBBB modifies and makes permanent expiring tax provisions in the Tax Cuts and Jobs Act (TCJA) for the “global intangible low-taxed income” (GILTI) – renamed, as the Net CFC Tested Income (NCTI) and the “foreign-derived-intangible-income” (FDII) – renamed as the Foreign-Derived Eligible Income (FDDEI).  For tax years beginning after December 31, 2025, the OBBB sets the NCTI deduction percentage at 40% and the FDDEI deduction percentage at 33.34%, respectively. In addition, the OBBB establishes a 10.5% rate for the base erosion anti-abuse tax (BEAT).

Other Noteworthy U.S. International Tax Provisions in the OBBB

• The OBBB reinstates Section 958(b)(4), which was repealed in the TCJA. The rule was designed to block downward attributions such that a foreign corporation is not automatically attributed to a U.S. parent. Section 958(b)(4) was reinstated to avoid unintentional creation of additional controlled foreign corporations (CFC) and unnecessary subpart F filings. 
• The OBBB also includes a remittance transfer tax at a reduced rate of 1% that imposes an excise tax on certain cross-border remittance transfers, effective for transfers sent after December 31, 2025. The tax applies to both U.S. and non-U.S. citizens.
• Additionally, the OBBB: (i) includes a new Section 951B, which introduces a new tax regime titled the “Foreign Controlled U.S. Shareholders”; (ii) amends Section 863(b) sourcing rules for property produced by a taxpayer in the U.S. but sold outside the U.S. and attributable to a foreign office or fixed place of business; (iii) permanently extends Section 954(c)(6)(C) CFC look-through exception; and (iv) amends Section 960(d)(1) to increase the deemed paid credit for subpart F inclusions from 80% to 90% (the provisions are effective for taxable years after December 31, 2025)

Estate and Gift Tax Provisions

Permanent Increase in Estate, Gift and Generation Skipping Transfer Tax Exemptions: From Sunset to Sunrise

With Congress’s passage of the OBBB, the unified credit for estate and gift taxes and the generation-skipping transfer tax (GSTT) exemption have been permanently increased from $10 million per individual to $15 million per individual, indexed for inflation. This amendment prevents the sunset of the “bonus exemption” established by the Tax Cuts and Jobs Act (TCJA) that was slated to occur at the end of this year.

The unified credit allows individuals to transfer wealth without incurring federal estate and gift taxes up to a specified limit. Similarly, the GSTT exemption allows transfers to certain future generations without incurring additional tax. By raising the exemption amount to $15 million, individuals will be able to pass on greater wealth to their heirs without the burden of transfer taxation, thereby encouraging wealth accumulation as well as larger lifetime gifts and transfers within families.

Once signed into law by President Trump, the permanence of this increase will allow for more strategic long-term financial planning, as individuals will be able to confidently make decisions regarding wealth transfers without the looming uncertainty of potential tax increases resulting from the temporary nature of the exemption. The increased exemption may necessitate a reevaluation of existing trust structures and the establishment of new ones. Therefore, families should take a proactive approach and thoroughly review their existing estate plans in light of the increased exemption and adjust their current plans accordingly, as well as consider the timing and amount of lifetime gifts to maximize tax benefits. By understanding and leveraging the changes implemented by the OBBB, individuals can optimize their estate plans to minimize tax liabilities, maximize wealth transfer, and achieve their long-term financial goals. 

Looking Forward to Next Steps

Once the OBBB is signed into law by the President, the next step will be implementation. Action will turn to the rulemaking process, where the Department of Treasury will propose and finalize regulations related to each of the tax provisions. I will continue to monitor and provide additional analysis on the implementation of the OBBB, as well as personalized guidance on navigating the complexities of the new tax provisions. Look for additional advisories as the impact of the OBBB. 

At the dawn of the new decade , Illinois has brought with it a new day for revocable and irrevocable trusts in Illinois. As of January 1, 2020, the Illinois Trusts and Trustees Act was no more. The Illinois Trust Act (ITC) now governs the obligations of trust fiduciaries and rights of beneficiaries, and its modifications to prior law have significant implications for trust preparation and administration.

With some nuances as discussed below, the ITC applies to all trusts created before, on, or after its January 1 effective date. As such, estate planners, trustees, and beneficiaries should revisit existing trust documents and establish new trusts with these changes top of mind. Similarly, those charged with administering trusts need to ensure that their notice, accounting, and other procedures comport with the ITC’s requirements.

Here are some of the most impactful provisions of Illinois’ new trust regime:

“Silent Trusts” and Notice to Beneficiaries Under 30

“Don’t trust anyone over 30,” was a refrain from the 1960s, but “don’t provide trust information to anyone under 30” is an option that trust settlors now have at their disposal under the ITC.

By establishing a “silent trust,” a settlor can keep a trustee from disclosing the existence, terms, and assets of a trust to designated beneficiaries until their 30^th birthday. This is an attractive tool for those who would prefer that their heirs or other beneficiaries are more mature before learning about a potential windfall they may have coming their way in the future. Estate planners and clients should explore whether a “silent trust” comports with the client’s overall estate planning goals.

Previously, trustees had to provide accountings and information directly to all existing income beneficiaries who were not under a legal disability. Now, a settlor may include a provision directly in the trust instrument in which they:

• waive the trustee’s duty to provide accounts and information about the trust to beneficiaries under 30, and
• nominate or authorize one or more persons to appoint a “designated representative” to whom the trustee must provide required information on behalf of the beneficiary until that beneficiary turns 30.

When that beneficiary’s 30^th birthday comes around, or if no designated representative is acting, the trustee must then notify that beneficiary of the existence of the trust, the beneficiary’s right to a copy of the trust instrument, and whether the beneficiary has the right to request trust accountings.

Pre-ITC and Post-ITC Accounting Standards

As noted, the ITC governs all trusts in the state regardless of when created. However, the date a trust was established will play a role in determining which applicable accounting standards a trustee must follow when administering the trust. Specifically, the date of trust creation, whether it is a revocable or irrevocable trust, and the date upon which a trust became irrevocable all factor into how fiduciaries keep the books and provide accountings.

Irrevocable Trusts Established Before 1/1/2020

For trusts that are or became irrevocable before the ITC’s effective date, or for trustees who accepted their role before that date, the ITC incorporates the standard for furnishing accounts found in Section 5/11 of the old Trust and Trustees Act.

This means that trustees of such trusts must provide accountings only to those beneficiaries then entitled to receive or those currently receiving income from the trust estate, or if none, to those beneficiaries eligible to have the benefit of income from the trust estate. The trustee does not need to provide accountings to remainder beneficiaries.

The old accounting standards also apply to trustees of revocable trusts who begin to act before January 2020 until that trustee ceases to act. Any successor trustees must then follow the ITC’s accounting standards.

Irrevocable Trusts Created On or After January 1, 2020

For irrevocable trusts established this year and thereafter, trustees must provide annual accountings to all current mandatory and permissible distributees of principal or income. Unless the trust document provides otherwise, trustees of post-ITC irrevocable trusts must deliver accountings to presumptive remainder beneficiaries, not just those currently receiving or entitled to receive distributions.

The trustee cannot waive this obligation. However, as discussed above, the ITC allows a settlor to establish a “silent trust” through which he or she can direct that the trustee provide accountings to a designated representative for certain beneficiaries rather than the beneficiaries themselves until each such individual turns 30.

The accountings required under the ITC are more detailed and contain more information than under the previous law. For post-ITC irrevocable trusts, the trustee’s annual accounting must include not only inventory, receipts, and disbursements, but also:

• The trustee’s compensation
• The value of all trust assets at the close of the accounting period
• All other material facts relating to the administration of the trust

Decanting Changes

The ITC includes several changes that should remove complications and obstacles to decanting a trust, including narrowing the circumstances when a trustee must seek court approval.

Under the old law, only an Authorized Trustee could decant a trust without court approval, provided that: (1) there was one or more legally competent current beneficiaries and one or more legally competent presumptive remainder beneficiaries and the trustee sent written notice of the trustee’s decision to them and (2) none of the beneficiaries objected within 60 days after the notice was sent. That is no longer the case. Now, except as otherwise provided in the ITC, an Authorized Fiduciary (more broadly defined) can exercise the decanting power without the consent of any person and without court approval.

While the Authorized Fiduciary must still provide notice of intent to decant to each settlor of the trust, each qualified beneficiary of the trust, and other fiduciaries (unless waived by the beneficiary), notice no longer needs to be given to a qualified beneficiary who is a minor and has no representative.

Importantly, beneficiaries can no longer stop a decanting simply by objecting to it, as was the case under prior law. Now, any beneficiary who wishes to challenge the fiduciary’s exercise of the decanting power must file an application with the court in order for their objection to be heard.

Easier Delegation and Fewer Transactional Notice Requirements For Trustees

Several provisions of the ITC should make life easier for fiduciaries acting in good faith, allowing them to delegate more responsibilities while reducing the need for notice and approval for transactions or investments.

Trustees may now feel more comfortable delegating discretionary powers to an agent, as the agent’s actions or misconduct will not result in liability for the trustee so long as the trustee exercised reasonable care, skill, and caution when selecting the agent clearly established the scope and terms of the delegation, consistent with the trust’s purposes and trust instrument; and periodically reviewed the agent’s conduct to ensure that they are acting within the scope of their authority.

Additionally, trustees no longer have to provide advance notice to beneficiaries before engaging in certain transactions involving the disposition of trust assets. However, the ITC requires the trustee to give notice to all current beneficiaries and all presumptive remainder beneficiaries in the following circumstances:

• Of the trust’s existence, the beneficiary’s right to request a copy of the trust agreement and right to an account (within 90 days of the trust becoming irrevocable or a change in trusteeship)
• when a trust becomes irrevocable (within 90 days of the event)
• appointment of a new trustee (within 90 days of acceptance)
• a trustee’s resignation
• change of trustee caused by the incapacity, death, disqualification or removal of an acting trustee or change in a trustee’s contact information (within 90 days of the event), or
• a change in the trustee’s compensation (notice must be provided in advance).

Some of these requirements may be waived by a beneficiary or eliminated or modified by the settlor in the trust agreement.   

Expanded Considerations Under the Prudent Investor Rule

Recognizing that investment decisions, as well as the disposition of trust property, may implicate concerns beyond dollars and cents, the ITC allows trustees to consider social, environmental, and other factors in their investment decisions so long as they follow the prudent investor rule and such considerations are consistent with the trust documents.

Similarly, trustees may now factor in the emotional and sentimental value of a trust asset to some or all beneficiaries, as well as any special relationship the asset has to the trust’s purpose, when making decisions regarding the disposition of such an asset.

Shorter Limitations Periods

For trusts that become irrevocable on or after January 1, 2020, the limitations period for breach of trust claims against the trustee is now two years instead of three years.

Claimants seeking to contest the validity of a trust that was revocable upon the settlor’s death must commence any action within the earlier of two years after the settlor’s death or six months from the date the trustee sends the beneficiaries notice of the trust.

If You Have Questions About The New Illinois Trust Code, I Have Answers

Substantial changes to the law always raise as many questions as they answer. The Illinois Trust Act is no different. If you need assistance reviewing and revising existing trust instruments, want to establish a new irrevocable or revocable trust, or have concerns about your rights and obligations under the ITC, contact me.

Sometimes even the best laid plans do not work out. Most everyone has certain goals in mind for their Estate Plan, including detailed disposition of their assets upon death. Often, these goals reflect long-standing plans to reward a beneficiary for their devotion to the business or even to follow through on a promise to gift a particular asset to a beneficiary. The ideas may seem straight-forward; however, these simple bequests can prove difficult, if not impossible, to implement if the assets no longer remain in the estate, or if the value of the asset changes substantially between the time the documents are signed and the death of the donor. Sometimes circumstances such as medical expenses require the sale of an asset prior to death, resulting in ademption of the asset. Sometimes changes in the assets and their values occur with the mere passage of time. This article explores what happens when an Estate Plan includes a specific gift and circumstances change such that the Estate no longer owns that specifically devised asset or its value has changed drastically and the potentially catastrophic and likely unintended consequences that follow.

Specific gifts present an easy way to accomplish Estate Planning goals. Let’s assume that Johnny’s mother left a Will leaving him the business worth $1 million. She left the remainder of her estate also worth $1 million to her daughter, Sally. Each child would receive an approximately equal share of mom’s estate. If Johnny’s mother sold the business and then died prior to updating her Will, in states that follow the common law doctrine of ademption, Johnny would receive nothing. For those unfamiliar with the term, ademption occurs when specific property given to a beneficiary no longer exists at the death of the donor. The property could have been sold, destroyed, or otherwise disposed of.  It matters not how or why the property no longer exists, only that it’s gone.

Let’s assume that instead of a business, Johnny’s mom plans to give him the Key West vacation home because he traveled there every summer for mini-lobster season. Mom contracts to sell the property, intending to buy a larger home, but dies prior to closing.  Although the contract is executory, the doctrine of equitable conversion deems the purchaser the owner of the home from the moment the contract becomes enforceable. Even in this scenario, the specific bequest was adeemed and Johnny again loses out on his inheritance.

To further illustrate the point, assume that Johnny’s mom wants to give her diamond ring to Johnny’s sister, Sally.  Shortly before mom’s death, a thief steals the diamond ring. The personal representative makes a claim against mom’s insurance and the estate collects the insurance proceeds. You might assume that Sally would receive the proceeds in place of the diamond ring. In most states that recognize ademption, the specific devise would be adeemed by extinguishment, notwithstanding the estate’s receipt of insurance proceeds. Sally would have no recourse, although the estate would have been made whole. A few states have moved to enact statutes that give the insurance proceeds to the beneficiary when the asset no longer exists.

Some states, like Florida, will look to the testator’s intent to determine if a suitable replacement exists. Other states, like Wisconsin, have attempted to abolish the doctrine of ademption by extinction by awarding beneficiaries the balance of the purchase price of an asset that was sold. Yet others, like Virginia, carve out specific types of assets, such as stock certificates. Thus, if a new company buys the stock of the old company that was the subject of a specific devise and issues new stock, that specific bequest would not have been adeemed and the beneficiary would take the new stock in place of the old. Still others, like California, actively seek to avoid ademption whenever possible.

Now, let’s flip the scenario back to the original example in which Johnny receives the business and Sally receives the residuary estate. Assume that the business appreciates substantially between the time mom signs her estate planning documents and her death. If Johnny receives the business valued at $8 million and Sally receives the $1 million residuary, Johnny receives many multiples of what Sally does. Obviously, this was not mom’s intent, but most states would never get to intent in this situation because the documents were clear. This example highlights an extreme result of planning gone awry, but an important one to consider when a client wants to make specific bequests.

Is there anything that can be done? Perhaps. Obviously, clear drafting that indicates what should happen should the asset no longer be in the estate, or if an asset appreciates substantially, help keep the beneficiaries whole. In most states, if a specific devise fails because it has been adeemed, the intended beneficiary has little or no recourse and will not be reimbursed for the value of the potential specific bequest from other components of the estate. It matters not whether the removal was intentional or unintentional. If the asset is gone, it’s gone. Sometimes even when the asset has changed substantially in character, the specific bequest could be considered adeemed. In other situations, if the specific devise appreciates well above the value of all the other assets combined, children who were supposed to have equal treatment would end up being treated unequally. It’s important to take care with specific bequests and ensure that you consider all the possibilities for the asset and include appropriate adjustments as part of a comprehensive Estate Plan.