Category Archives: Uncategorized

As we gather with our family, friends, and loved ones to celebrate the holidays, let’s take a moment to savor the food and our time together. This time of the year offers a special opportunity to show our loved ones just how much we care. We can do this in any number of ways, including gifting.

Let’s make this year the year we give gifts that benefit both the recipient and the donor. Annual exclusion gifts provide a benefit not only to the recipient but also to the donor. Annual per donee exclusion gifts allow the donor to make gifts to multiple individuals without incurring any transfer tax consequences, provided that the total gifts to an individual are present interests and do not exceed the threshold amount. Internal Revenue Code (“Code”) Section 2503(b) sets the amount that an individual taxpayer can gift to any other person at $19,000 for 2025 and 2026. Giving now allows individuals to reduce the value of their taxable estate without impacting the lifetime exclusion amount of $13.99 million in 2025 ($15 million in 2026). In addition to allowing the donor to avoid use of any applicable exclusion amount, annual per donee gifts remove future appreciation on the assets gifted from the donor’s estate as well.

The Code imposes no limit on the number of annual per donee exclusion gifts per taxpayer, meaning that an individual taxpayer may gift up to that $19,000 amount to an unlimited number of individuals without ever worrying about estate or gift tax consequences. Gifting the funds or assets removes them from the donor’s taxable estate without ever impacting the lifetime exclusion amount. It’s one of the few totally “free” estate planning techniques. Because annual gifts reduce the size of the taxable estate, they also reduce the potential tax liability. For married couples, the benefit doubles because each spouse can gift the annual per donee exclusion amount to the same individual, and if the recipient has a spouse, then the donors can double the impact of their gifting again. Let’s review an example that demonstrates effective use of the annual per donee exclusion amount.

Assume that Mike and Carol recently met with their attorney, who suggested that they start reducing the value of their taxable estate. Mike and Carol were preoccupied with the pending nuptials of their daughter, Cindy. They realized that they better act quickly to utilize their 2025 annual per donee exclusion amounts. They decided to give each of their six now-married children, Greg, Marcia, Peter, Jan, Bobby, and Cindy, an envelope containing $76,000 ($38,000 from each of Mike and Carol to each child, plus an additional $38,000 for each spouse of each child) at Cindy’s wedding on New Year’s Eve 2025. After the clock strikes midnight, the family rings in 2026, and Mike and Carol hand out another set of envelopes, this time, with $76,000 ($38,000 from each of Mike and Carol to each child, plus an additional $38,000 for the spouse of each child) in each envelope.

In the example above, in just a few hours, Mike and Carol gave away over $900,000 without incurring any estate or gift tax consequences. Mike and Carol each gave $19,000 to each of their six children and their spouses, totaling $456,000 in 2025, and Mike and Carol each gave $19,000 to each of their six children and their spouses, totaling $456,000 in 2026, for a total of $912,000. In fact, Mike and Carol could each also gift $19,000 to a grandchild in 2025 and again to that same grandchild in 2026. The foregoing example demonstrates how quickly these gifts can add up and make a huge impact on an estate. In addition to using the annual exclusion gifts, the Code gives taxpayers a tax-free pass when they pay the medical bills of another individual or pay the tuition bills of a student. The Code imposes no limit on the amount of these medical and tuition gifts, as long as the amounts are paid directly to the provider. The Code also allows contributions to charitable exempt organizations. The Code imposes no limit on the amount of these contributions for gift tax purposes, which provides another easy option for those who want to do some easy estate planning. Such charitable contributions may also qualify for a charitable income tax deduction, up to certain percentages of the taxpayer’s adjusted gross income.

The upcoming holiday season presents the perfect time to consider these and other estate planning issues. Options may exist for the use of annual exclusion gifts in conjunction with trusts and a long-term Estate Plan. Giving now, rather than waiting until death provides several estate planning opportunities in the form of tax-free distributions, reduction of the gross estate, and appreciation outside of the taxable estate, not to mention the benefit to the recipient that the donor will witness while alive.

For many years, I have been interested in a tax strategy designed to defer the payment of capital gains taxes, to preserve wealth, to create reliable, predictable streams of income and to aid in effective intergenerational wealth transfer. This strategy is known as the Deferred Sales Trust™ or “DST” (not to be confused with the Delaware Statutory Trust per IRC §1031, also known as a “DST”). By this point in my journey with the DST, I have acted as the attorney for sellers curious about this strategy but uncertain as to whether or not it is a bona fide transaction (the “tax risk”), whether or not they can trust the various parties who take the seller through the process (the “defalcation risk”) and/or whether or not the proceeds of the sale will be invested properly and the principal preserved for ultimate recognition (the “market risk”). I have guided many such sellers through the process and every single seller whom I have advised has been thrilled with the outcome. This article will describe the transaction in the most general terms, address the three risks just noted and will identify the myriad of prospective users and professionals for whom this strategy holds tremendous value and utility.

In a DST, the seller is someone (an individual, a couple, a family, a partnership, a corporation or other entity, with a highly-appreciated asset (a business, a real estate holding (commercial or residential, investment or personal), artwork or other collectible) that the seller wishes to sell. However, in doing so, the seller is subject to federal capital gains taxes, state capital gains taxes (where applicable), the ACA tax, likely depreciation recapture and other burdens that may leave the seller with only half of the sale proceeds after all taxes and related obligations have been paid to the government. This is especially frustrating to the seller because he or she or the entity has been paying taxes on the business or the real estate holding year in and year out for many, many years in most cases. At the time of sale, this amounts to multiple levels of taxation. In other words, the seller is unable to recognize the full value of the sale after nurturing the asset along over time and paying taxes annually on the income derived from the asset in the hope that, at the time the seller is ready to sell, he or she will be able to enjoy the fruits of his or her labor. I call this “the reluctant seller.”

In the case of the DST, the seller identifies a prospective buyer for the asset but does not travel down the road too far toward consummating the transaction. The seller contacts an advisor who is licensed to employ the DST strategy and the seller negotiates how and when he wants his principal returned, how she wants her money invested, what type of return he desires and numerous other essential and ancillary terms. Once there is an agreement, a contract is formed and the trustee contacts the ultimate purchaser of the asset and agrees on the purchase price. The trustee then purchases the asset from the seller and simultaneously conveys the asset to the end buyer, taking possession of the sale proceeds. The trustee then works with the seller’s investment advisor to ensure that the proceeds are invested in accordance with the terms of the trust and in accordance with the seller’s risk tolerance and preference for certain types of managed accounts, securities, alternative investments, insurance products, etc. The trustee then delivers to the seller a note. The seller is now the “note-holder” and enjoys all of the legal rights and privileges, including the right to call the note, that anyone holding a note possesses.

At the end of the transaction, the note-holder has the note. The buyer has the asset. The trustee, acting on behalf of the note-holder, oversees all investment decisions made by the note-holder’s financial advisor. No capital has been received by the note-holder. No taxes are due. 100% of the sale proceeds are invested in accordance with the note-holder’s wishes by the note-holder’s trusted advisor(s) and the note-holder may take principal (and pay pro-rata capital gains taxes on same) pursuant to a predefined schedule. The note-holder will receive annual income at the predefined rate of return. This ordinary income (from the investments) will be subject to taxation at the note-holder’s applicable income tax rate. Ultimately, when the principal is delivered to the note-holder, in periodic payments or in a balloon payment at the conclusion of the trust (such that the note-holder can maximize the annual return during the course of the trust), the capital gains taxes are paid accordingly. It is a winning situation for the seller / note-holder, a winning situation for the buyer and even a winning situation for the government (state and federal), as the taxes are ultimately paid (unlike when there is a step-up in basis at death in a like-kind exchange). However, the taxes are paid on the taxpayer’s schedule, not the government’s, and at a time when it is most advantageous for the taxpayer. Thus, the reluctant seller is not so reluctant anymore (making real estate brokers’, business brokers’, financial advisors’ and other investment professionals’ lives a bit less stressful in the process).

To return, as promised, to the three main concerns on the part of prospective DST users, I will address them in order. The first concern is tax risk, the risk that the IRS will not recognize the transaction. This is a bona fide installment sale per Section 453 of the Internal Revenue Code. If the seller engages the DST professionals in a timely manner and adheres to their advice, the transaction will be fully respected by the IRS. Furthermore, counsel for the trust will handle any audit they may arise in relation to the sale and use of the DST free of charge and will pay any penalties assessed against the taxpayer (somewhat in theory, as this has never happened after billions of dollars of DST transactions). The IRS actually favors the DST and IRC § 453 transactions more generally, as the government actually receives the capital gains taxes on the appreciated property at some point in time, unlike other transactions with a step-up in basis where the government may never see any tax revenue.

In terms of defalcation risk (that is attorney language which means the risk that the DST professionals will run away with the seller’s proceeds). There are multiple documents that make each and every move that is undertaken with respect to the corpus of the trust and the investments made therefrom subject to multiple signatures by unrelated parties at multiple financial institutions, each with a fiduciary relationship to the trust and the beneficiary of the trust – the seller / note-holder. Moreover, all of the parties involved in these transactions have undergone substantive background checks and all have been found to be committed professionals with impressive pedigrees who are beyond reproach. Finally, the seller / note-holder is able to monitor his or her investments, undertaken by the trust, and the performance of these investments in real time from a computer, a tablet, a phone or other mobile device. In other words, the seller / note-holder always knows where the sale proceeds are and how the investments are performing.

Finally, in terms of market risk, the seller must distinguish a specified risk tolerance after completing a risk tolerance questionnaire prior to the transaction. This provides for the formation of the investment statement of the trust. The trust must adhere to the investment statement at all times. Under no circumstances can the sale proceeds be invested into any instrument that is purely speculative in nature, no matter the appetite for risk. That said, within the conservative boundaries of what is permissible, some degree of risk will produce a higher return. In all cases, a fully diversified portfolio of non-correlated investments is created in order to provide some degree of protection against normal market fluctuations. Ultimately, there is less risk in a DST portfolio than in a single mutual fund, precisely because of the diversification (and the likely inclusion of annuities and other insurance products that carry minimal to nonexistent risk).

This strategy works best for (1) the reluctant seller concerned about the onerous capital gains obligations at disposition; (2) sellers desiring the benefits of a Section 1031 exchange but are not qualified in terms of the like-kind provisions; (3) a backstop for a failed Section 1031 exchange in which the qualified intermediary is instructed to direct the sale proceeds to the DST instead of the taxpayer should the like-kind exchange fail, thereby avoiding a major taxable event; (4) sellers of going concern businesses with ample goodwill which cannot be part of a like-kind exchange; and (5) all others who seek to sell a concentrated highly-appreciated asset and reinvest the proceeds of the sale in a diversified, tailor-made basket of stocks, bonds, mutual funds, alternatives and other investments in a tax-deferred manner wherein 100% of the sale proceeds are deployed to produce income at a set annual rate over a predefined period of time.

For the reasons described above, adding the DST strategy is beneficial for real estate brokers, business brokers, financial advisors, insurance professionals, qualified intermediaries,  accountants and a host of other professionals who seek to retain and “wow” their high-net-worth clients and customers. Both as a tax and estate planning attorney who has guided numerous parties through the DST process and as a DST trustee, engaged in buying and selling highly-appreciated assets, I am happy to assist you whether you are a prospective user of the DST or whether you fall into one of the categories listed above as a trusted advisor having clients with highly-appreciated assets.

For years, the Department of the Treasury was concerned that all-cash residential real estate transactions offered an opportunity to launder illicit funds.  Bank-financed purchases already fall under lender Anti-Money Laundering (“AML”) obligations, but transfers that bypass institutional financing historically received far less scrutiny. Financial Crimes Enforcement Network (“FinCEN”)’s new residential real estate reporting requirement closes that gap by requiring reporting for non-financed real estate transfers to legal entities and trusts. The reporting requirement seeks to increase transparency in the residential real estate sector and deter money laundering.

Under the new reporting requirement, any transaction involving the transfer of residential real property to a legal entity or trust that does not involve a bank, or other financing, needs to file a report.  Covered “residential real property” includes single-family houses, townhouses, condominiums, cooperatives, and land intended for one-to-four family residences. Properties with mixed residential and commercial use may also qualify as “covered residential real property” if the structure contains a residential unit. A “transfer” broadly means any change in ownership, whether by deed or, for cooperatives, through shares or membership interests. The rule focuses on all-cash transfers to entities or trusts, meaning those without financing from a lender. It applies regardless of the purchase price and includes gifts or transfers with no payment.

The central question becomes who must file the report. FinCEN assigns this duty to the “reporting person,” generally the professional most directly responsible for the closing. The rule uses a “reporting cascade” to determine the responsible party.  Priority goes first to the settlement agent listed on the closing statement, then to the person who prepared the statement, then to the party who filed the deed, etc., through a defined list of individuals involved in the transaction.  The rule assigns responsibility to one reporting person only for a given transfer, though parties can also enter into a written designation agreement to shift that duty from one qualified participant to another. For Estate Planning attorneys who occasionally handle deed work directly, this framework means you could unexpectedly find yourself in the reporting role.

Understanding what counts as a “covered transferee” is critical. The rule looks for situations in which a legal entity—like a Limited Liability Company (“LLC”), corporation, or a trust acquires the property. Placing a rental property into a newly formed LLC triggers the requirement to report.    Likewise, deeding a beach house to a trust for the benefit of children also falls under FinCEN’s microscope. An individual deeding property into their own revocable grantor trust without consideration, does not trigger the requirement to report. Additionally, transfers because of death, divorce, bankruptcy, or pursuant to certain court orders also fall outside the rule’s scope.

FinCEN expects detailed information in these reports. A reporting person must disclose identifying information about the transferee and any beneficial owners behind an entity or trust. That includes names, dates of birth, addresses, citizenship, and taxpayer identification numbers. For trusts, the reporting person needs to know the grantor, trustee, and certain beneficiaries. Attorneys who have spent the past year digesting the Corporate Transparency Act’s beneficial ownership framework will recognize the overlap. The trigger here hinges on acquiring residential real estate without financing, rather than the existence of an entity.

Consider how this might play out in practice. A long-standing client asks you to help deed their vacation home into a family LLC for asset protection. In the past, you might have drawn up the transfer documents, filed them, and never given another thought to the transaction. After December 1, 2025, that same task requires you to determine whether you are the reporting person and, if so, to file the Real Estate Report using the Bank Secrecy Act filing system at  https://bsaefiling.fincen.treas.gov/main.html.  Reports need to be filed with FinCEN by the later of the last day of the month following the month of closing or 30 calendar days after closing. Imagine a parent transferring the family residence to fund a trust for children. FinCEN now flags that once-routine estate planning technique as a transaction with potential for money laundering that requires reporting. Even if you are not the reporting person because a title company handled the filing, your client’s trust information will be part of the report. This flies in the face of the idea espoused by many Estate Planning attorneys that trusts offer privacy.

For many, the initial reaction may be surprised that ordinary trust and family transfers are now subject to federal anti-money laundering reporting. FinCEN seeks to prevent the use of legal entities and trusts to purchase residential real estate with illicit funds. In practice, this means that even routine transfers without a hint of misconduct fall under the reporting rule requiring disclosure of substantial personal and ownership information about clients.

FinCEN’s residential real estate reporting requirement takes effect on December 1, 2025.  As this article demonstrates, the rule has some complex provisions that have broad applicability. This article provides only a brief synopsis of the most relevant provisions. Estate Planning attorneys who handle deeds, trusts, and family property transfers fall squarely within the rule’s scope, regardless of whether they serve as the reporting person. Preparing now by understanding which transfers are reportable, identifying the reporting person, and collecting the required information will help attorneys guide clients smoothly and avoid surprises. Taking these steps ensures that clients remain compliant and well-prepared for the new reporting obligations.

I really wanted to watch the Monday night football game, and I really needed to write this blog, so I thought I’d do both and write a blog about what football and Estate Planning have in common. Turns out it’s more than you think. Both Estate Planning and football focus on strategy, teamwork and preparing for the future. Both require assembling the right team, adapting to changes, and defining clear goals. To reach the desired conclusion, both Estate Planning and football require foresight, determination and a bit of grit. Finally, in both, it’s important to remember that it’s not over until it’s over.  While a game ends only once the final whistle blows, a well-drafted Estate Plan may not be subject to change after death but often lives well beyond the life of the individual who created it.

As we settle in for the first weekend of football, let’s explore what a football team and an Estate Plan have in common. Both require a solid game plan.  For football and Estate Planning alike, the game plan serves as the roadmap to achieve a specific objective, be it winning the game, or securing a legacy.  The “game plan” to secure a legacy for Estate Planning involves discussing the goals of the individual making the plan. Once the goals have been set, then the attorney drafts documents that create the Estate Plan.  Finally, once the individual has executed the documents creating the plan, the client, the attorney, and others work together moving assets, updating beneficiary designations, and filing required paperwork to implement the Estate Plan. Like the various plays executed by a football team, the legal documents for an Estate Plan’s create the “playbook” in Estate Planning. Well-drafted Estate Plans provide instructions for what happens both during life and at death. A comprehensive Estate Plan consists of a Living Trust, also known as a Revocable Trust (a “Trust”), a Will, a Property Power of Attorney, a Healthcare Power of Attorney, an Advanced Medical Directive, and a Health Insurance Portability and Accountability (“HIPAA”) Authorization.  Preparing these documents, much like the game plan, is only the beginning.  As in football, application and execution of the “game plan” matters.

In addition to a great game plan, both football and an Estate Plan require a strong team to enact the plan. In Estate Planning, the attorney serves as the quarterback and needs supporting players such as a financial advisor, a certified public accountant or other tax professional, as well as other specialists. Each individual member has specific roles and responsibilities and brings their own expertise to the “game.” When these parties work well together, they create a seamless plan with flexibility. However, just like a football team, if a member of the Estate Planning team fails to do their job properly, that failure can have disastrous consequences. Much like the far-reaching impact of a quarterback throwing an interception or a defender missing a tackle, an individual failing to accomplish their portion of the plan may lead to significant unintended and negative consequences. Those consequences range from additional taxes or loss of government benefits to creditors obtaining access to or misappropriation of assets. Just like on the football field, minor mistakes have major consequences. Estate Planning, like football, presents opportunities to learn from mistakes and to evolve.

Not only does each team member need to complete their job in both football and Estate Planning, but each needs to adapt when circumstances warrant it. The football team needs to alter its offensive or defensive plays if they are not producing the intended results. Likewise, the attorney and the team responsible for creating and implementing the Estate Plan need to pivot when family dynamics, beneficiary needs, or finances change. Even in the absence of such changes, both football teams and estate planning clients need to review the playbook periodically to ensure that it continues to meet needs and respond to new challenges.

In both football and Estate Planning, sometimes the best offense is a good defense. Drawing parallels between the two was easier than I thought, after all, both focus on strategy, teamwork, preparing for the future, assembling a team of experts, adapting to changing circumstances, and defining clear goals to ensure a successful outcome. Finally, both require a flexible approach to address as many unknowns and potential outcomes as possible. In both, it’s impossible to predict everything, although it’s incumbent upon the team to address as much as possible. Thankfully, my team was able to do that on Sunday. For most of the game, it looked like they were going to lose. Instead, they never gave up, continued to adjust, and ultimately had faith in one another and relied upon their teammates. That winning combination allowed them to prevail, much as it does for an Estate Plan. If you are looking to secure your win, reach out to me about how I can help you structure your Estate Plan thereby securing your legacy.

I came across an article regarding Prince (born “Prince Rogers Nelson”) which got me more interested in his Estate. A small idea took root and as I researched, I discovered that despite the near decade that has passed since his death, Prince’s Estate remains a “Controversy.” Just this week, his former protegee and co-star in the 1984 film, Purple Rain, Apollonia (Patty Kotero) sued Paisley Park Enterprises, LLC accusing the company of using bad faith trademark proceedings to steal her name. According to the lawsuit, while Prince was alive he encouraged Apollonia to use the name professionally. After his death, his Estate undertook to acquire all things related to Prince, including cancellation of Apollonia’s trademarks and ownership of the name. Several sources explore those topics in detail, but that’s beyond the scope of this article. This article will focus on the completely preventable mess that Prince left behind when he died on April 21, 2016, at age 57.

Prince was born on June 7, 1958, and rose to fame as a singer, songwriter, musician and actor. He began releasing albums in the late 70’s and in 1984, he became the first singer to have a number one film, album, and single in the United States, with the release of the film, Purple Rain, its soundtrack, and his first Billboard Hot 100 chart-topping single, “When Doves Cry.” Even today, years after his death, he’s remembered as one of the most influential musicians of his generation. “Nothing Compares 2 U” sounds more poignant meaning now considering the void left behind by Prince who was adept at blending various musical styles, penning provocative lyrics, and playing multiple instruments, all while exuding a flamboyant, androgynous persona. Anyone who has heard him play live knows what he brought to the stage and how much the music industry lost when he died.

Prince’s death stunned many, especially when they learned that he died without an Estate Plan despite having assets valued at well over $100 million (some sources estimated it as high as $300 million). Prince left no surviving spouse and no issue resulting in a six-year legal battle as “Thieves in the Temple” began their plunder. Because Prince died without a Will or Revocable Trust, the laws of intestacy of his state of residence, Minnesota, governed distribution of his vast Estate. Interestingly, Minnesota intestacy laws include half-siblings as heirs, which underscores the idea that “The Beautiful Ones” (your closest loved ones) might not always inherit what you expect. Prince’s sister and five half-siblings spent six years fighting over his Estate, disagreeing over distribution and valuation, and initiating additional lawsuits.  It’s bittersweet to think that behind that brilliance, his own Estate would one day be a storm of “Purple Rain.”

Unfortunately, this type of protracted battle often occurs when an individual dies without an Estate Plan, particularly in situations involving sizeable Estates. Prince amassed tremendous wealth, held unique assets, and owned business interests at his death, yet failed to undertake any Estate Planning whatsoever. Arguably, he had over $150 million reasons to complete the task, yet Prince left no instructions regarding what should happen to his assets upon death.  That failure opened the door for his siblings to fight over his wealth and provided the attorneys handling the matter with considerable fees—perhaps they were the only ones singing “Take Me with U” to the bank. While most individuals don’t have anywhere near the level of wealth that Prince did, modest estates are not immune from these universal issues. Anytime an individual dies without an Estate Plan he or she leaves behind “Chaos and Disorder” rather than a “Kiss.”

A comprehensive Estate Plan goes a long way toward avoiding that confusion and expense.  Those documents – a Living Trust, also known as a Revocable Trust (a “Trust”), a Will, a Property Power of Attorney, a Healthcare Power of Attorney, a Living Will, and a Health Insurance Portability and Accountability (“HIPAA”) Authorization serve as your personal “Sign o’ the Times” to the world, making clear your wishes. If an individual dies without a Revocable Trust or Will, that’s referred to as dying intestate, which was what Prince did. As we discovered by reviewing his Estate, intestacy statutes determine distribution of assets without any input from the decedent. Those statutes also fail to account for the specific needs of the individual recipients, such as receiving needs-based governmental benefits leaving those individuals to wonder “Why You Wanna Treat Me So Bad?”

Intestate estates need to go through the probate process which requires an individual to petition the court for appointment as executor, personal representative, or administrator. Once that appointment occurs, then the individual has the legal authority to collect and distribute the decedent’s assets pursuant to the distribution scheme in the statute. That individual likely will need to retain an attorney to understand and navigate the complex court system. A judge oversees the many steps involved in this public probate process. Probate makes private matters public—something Prince himself fiercely avoided in life. His privacy, his control, even his mystique—all surrendered to a court record. It’s ironic that a man who once sang “I Would Die 4 U” left behind no blueprint for those he cared about. A little planning could have made his exit as smooth as “Diamonds and Pearls.”

So, what’s the lesson? Don’t leave the “Beautiful Ones” in your life crying in the “Purple Rain.” Whether your Estate is the size of a “Little Red Corvette” or a whole “Paisley Park,” get your Estate Plan in place. Otherwise, the courts and attorneys may be the only ones singing “Take Me With U,” and your loved ones could end up “Delirious.” Estate planning isn’t glamorous, but it’s the best way to keep control of your legacy, protect your privacy, and make sure your wishes are honored—so your family can celebrate your life instead of fighting over it. “Let’s Go Crazy” about planning now, to avoid “Thieves in the Temple” later.

What do “Hulk Hogan” (born Terry Gene Bollea) and Disclaimers have in common? Potentially, Hulk’s daughter, Brooke Hogan (“Brooke”), if sources portray the situation accurately. I recently read an article asserting that Hulk Hogan had his affairs in order and had created a Revocable Trust prior to his death. For the curious, the terms of a Revocable Trust generally do not become public, which means that Hogan’s plan may remain a mystery. That changes if someone initiates a lawsuit. In this situation, that could happen given the discord demonstrated by his family in public.

Let’s start at the beginning, or rather the end, of Hogan’s life. Hogan’s wife of nearly two years, Sky Daily (“Sky”), and his two children, Nick Hogan and Brooke, survive him. Hogan left an estimated $25 million estate that includes his real estate portfolio of $11 million, his Clearwater, Florida compound, several business ventures, a bar, plans for another establishment near Madison Square Garden, along with trademarks and intellectual property related to his wrestling persona. If Hogan failed to update his Estate Plan after marrying Sky, Florida law entitles her to thirty percent (30%) of the elective estate. Of course, Hogan’s plan could give her more than that and unless Hogan’s Estate Plan becomes public, we must guess. While interesting, that’s not the focus of this blog post.

According to several articles, in 2023 Brooke asked Hogan’s financial advisor to remove her as a beneficiary of his estate. Reports indicate that Brooke made this request because she distrusted people in her father’s inner circle whom she believed were taking advantage of him. Here’s the twist, the financial advisor has no power to remove Brooke as a beneficiary, even of the accounts under the financial advisor’s control. Hogan himself would have had to undertake that task. If Brooke wants no part of her father’s Estate, then she needs to execute a disclaimer, it’s her only option, and that’s the focus of this blog post.

One might think that it’s easy to disclaim, in fact, it’s not. Executing a “qualified disclaimer” takes some planning. It’s important to note that a qualified disclaimer means that Section 2518 of the Internal Revenue Code (“IRC”) treats the disclaimant as though they predeceased the decedent, thereby avoiding potential gift tax consequences for the disclaimant. A non-qualified disclaimer, on the other hand, results in a gift from the disclaimant to the new beneficiary, which may trigger undesirable tax consequences. To avoid this, it’s essential to meet all the requirements for a qualified disclaimer.

First, the disclaimer needs to be in writing. Next, the disclaimer needs to be irrevocable. It cannot contain any contingencies, be subject to change, be reversed or be qualified in any other way. The disclaimant cannot disclaim based upon any condition, for example, another individual also disclaiming. The disclaimant needs to execute the disclaimer timely, within nine months of the creation of the interest, or within nine months of the beneficiary attaining the age of twenty-one (21). Determining the creation of an interest requires a careful review of the document creating the interest and the facts and circumstances surrounding that creation. In PLR 201407009, a settlor established an irrevocable trust in 1977 for the benefit of the settlor’s descendants. More than thirty-five (35) years later, a descendant who became eligible to receive assets under that trust was approaching the age of majority and inquired whether a disclaimer was possible. The Internal Revenue Service opined that the descendant could disclaim as long as the disclaimer met the other rules under IRC §2518. This PLR demonstrates the importance of understanding the facts and circumstances surrounding the interest sought to be disclaimed.

In addition to the requirements noted above, the disclaimant needs to execute the disclaimer before accepting any benefits from the property. If the disclaimant accepted benefits, then the disclaimant cannot disclaim. Interestingly, it’s possible to disclaim a partial interest in property. Finally, the disclaimant cannot control or direct the property in any way. This means that the disclaimant cannot say, I disclaim to David. That would be a gift. The disclaimant simply disclaims the property, and the document creating the interest directs what happens next and who receives the disclaimed property.

Inexperienced Estate Planning attorneys may not think of a disclaimer even when the situation warrants it. For example, some beneficiaries don’t need the money or property, perhaps the individual already has a taxable Estate without the gift. Perhaps they prefer that the property pass to the next individual in line for the gift, such as an adult child just graduating from college or buying their first home. Disclaimers add yet another dimension to the wild, wonderful world of Estate Planning and give us yet another tool to use. Properly executed disclaimers allow individuals to avoid tax and may help achieve a more desirable result than simply accepting property and then gifting it away.

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.

I will never forget the first time I heard the clever lyrics to Jimmy Buffett’s “Cheeseburger in Paradise:” “I like mine with lettuce and tomato, Heinz 57, and french-fried potatoes…big kosher pickle…” Don’t forget that onion slice, add some mayonnaise and that’s the recipe for one tasty burger. Unfortunately, when creating his Estate Plan, Jimmy Buffett named his wife and financial manager as co-Trustees, producing a recipe for disaster rather than his usual “frozen concoction.” Let’s discover what happened.

James (“Jimmy”) William Buffett was known for his unique musical stylings described as “Gulf and Western” that combines elements of country, folk, rock, pop, and Caribbean, focusing on tropical themes. He released over thirty albums, selling over 20 million certified records worldwide, landing him among the world’s best-selling music artists. He made us all dream of “island escapism” and leveraged that fantasy to create several successful business ventures, including the popular “Jimmy Buffett’s Margaritaville” restaurants, hotels, retirement communities, and cruise line. While a detailed review of his adventures exceeds the scope of this blog, “Come Monday,” those interested might want to explore his biography for a taste of “Life on the Flip Side.” Suffice it to say that Buffett took vacationing to the next level and truly embodied that island escapism about which he sang.

Jimmy Buffett died on September 1, 2023, at age 76 having waged a private battle with a rare and aggressive form of skin cancer in his later years. Estimates suggest Buffett’s net worth at death was $275 million. According to sources, Buffett originally created his Will over thirty (30) years ago. He changed it in 2017 and last updated it in 2023. His Estate Plan placed the bulk of his assets in a marital trust for the sole benefit of his second wife, Jane Slagsvol (“Jane”), whom he married in 1977. Although they separated for a time in the early 80’s, they reconciled about a decade later and remained married until his death in 2023. Jane and Jimmy had two daughters, Savannah Buffett and Sarah Delaney, along with an adopted son, Cameron Marley. Neither had any other children.

Jimmy appointed his longtime accountant who served as his business manager and financial advisor, Richard Mozenter (“Mozenter”), as co-Trustee of the marital trust along with his surviving spouse, Jane. In long-term marriages in which all children belong to both spouses, the marital trust often names the surviving spouse as Trustee. In some situations, the grantor may add a co-Trustee to support the surviving spouse for any number of reasons. Sometimes, like in this instance, that causes friction. Sources don’t make clear what went into the decision or whether Jimmy shared the decision with Jane prior to his death. Unfortunately, as in this case, appointing two individuals to serve without considering what happens should the co-Trustees disagree leads to problems. The best way to avoid disputes is to appoint a third party to serve with the other two or insert provisions regarding what should happen should the co-Trustees disagree. Of course, Buffett could have taken a different approach and appointed a professional fiduciary as Trustee instead. None of that happened here and now instead of the “Son of a Son of a Sailor” drifting off to the “Far Side of the World,” we will watch as his wife and financial manager fight to “Take Another Road.”

Each of Jane and Mozenter has sued the other. Jane filed a petition in a Los Angeles, California court alleging that Mozenter refused to provide basic information regarding the trust and its assets and directed her to review Jimmy’s estate tax return for the data she requested. She also accused him of mismanaging assets, collecting excessive fees, and advising her to sell her separate property to maintain her standard of living. Jane alleged that Mozenter collected $1.7 million in fees yet has indicated the marital trust will only produce $2 million in income. While we don’t have the full financial picture, a return of that amount seems low for the bulk of Buffett’s $275 million estate. Mozenter has filed a competing petition in a Palm Beach County, Florida, court which alleges that Jane has been uncooperative, interfered with business decisions, and breached her fiduciary duties by acting in her own best interests.

It will be interesting to watch this matter unfold. Jane was married to Jimmy for 47 years and likely enjoyed unfettered access to their assets while he was alive. Having that change after Jimmy’s death undoubtedly caused some resentment. Add to that Mozenter’s directive to sell her own assets and it’s easy to see why she initiated the lawsuit. Mozenter’s motives in initiating the lawsuit may border on parental, feeling that he needs to protect Jane from herself. Here, it will be up to the courts to determine which will hear the case because it’s possible that the courts could issue conflicting orders if both proceed. We can learn two important lessons here. First, Grantors need to share the contents of an Estate Plan with those who will be responsible for executing it and those who benefit from it. Clear communication with fiduciaries and beneficiaries, while the Grantor lives, helps manage expectations after death. Second, consider the personalities of the desired fiduciaries and beneficiaries as part of the planning process and make adjustments if personalities might clash. No one designs an Estate Plan hoping that the fiduciaries and beneficiaries will end up in litigation. Only the lawyers benefit when that happens.

While we wait for the end of this “song,” let’s remember that “It’s Five O’clock Somewhere” – and raise that frozen concoction along with its lost shaker of salt in Buffett’s honor. Here’s hoping that some “Changes in Latitudes” will result in “Changes in Attitudes” and allow this litigation to settle quickly. After all, Jimmy would have wanted his co-Trustees to “Take It Back” and join him on a “Lovely Cruise.”