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Heard at Heckerling 2022 - Day 1

The Heckerling Institute on Estate Planning conference is being held virtually for the second consecutive year, and we couldn’t miss the incredible opportunity to hear from some of the best and brightest in our field. Following our tradition for the past few years, we will be sharing some of the things we’ve learned each day. Here are some highlights from day one:

  • Paul S. Lee of Northern Trust talked about partnership taxation for estate planners. Paul’s presentation was precise and informative, and his diagram-filled PowerPoint with 233 pages of supplemental reading material was greatly appreciated. With partnership taxation being one of the most complicated topics in tax, Paul’s focus was on understanding the impact of planning on income and transfer tax. He spent time explaining how Section 1014 covers “step-up” basis rules upon the death of a partner and how 754 and 753 elections may work against the best interests of the deceased partner’s estate when considering basis issues, valuation discounts, and the treatment of partnership debt. Paul will be back tomorrow to cover additional topics!

  • Turney Berry, Jonathan Blattmachr, and Carlyn McCaffrey offered the recent developments for the 2021/2022 section. As expected, the first few minutes were spent discussing what almost happened last year (but mercifully did not!) and what changes might still be looming. There is still the threat that the IRS may limit the length of years a generation-skipping trust (GST) will remain exempt, which could severely limit dynasty trusts, and the IRS has said it will issue updated guidance on basis consistency rules at time of death.

  • The IRS has said it will be updating the life expectancy tables. This is expected to benefit any tax plan that utilizes the tables.

  • After several years of promising to issue guidance on whether a grantor trust (which is not includible in a decedent’s estate) is eligible for the step-up in basis, the IRS has taken this topic off its list of issues to address this year. However, several bar associations have recently asked Janet Yellen to release the promised guidance.

  • The IRS is turning its focus to the validity of incomplete gift non-grantor (ING) trusts. After furnishing over 60 PLRs supporting their validity, the IRS stated in 2020 that they would no longer issue favorable ruling unless the trust included certain provisions. Now it appears they are studying whether to reverse their position and deem the trust as either a completed gift or a grantor trust. It was suggested that when drafting an ING, the practitioner should state clearly in the document whether they are seeking an incomplete gift, or the income tax benefit of a non-grantor trust should the IRS issue rules denying the trust both attributes. While there was concern that the IRS would look to make new rules retroactive and invalidate 30+ years of INGs, the consensus was that the rules would be applied proactively, especially considering a recent 11th circuit case which found that a PLR can be used as authority when planning.

  • There have been some recent cases on qualified terminable interest property (QTIP) trust terminations and split-dollar agreements with trusts. There have also been cases on the state level regarding the accessibility of third-party trust assets in a marital action, which is particularly disconcerting.

As expected, an exhausting but very informative first day. Check back tomorrow to hear what we’ve heard at Heckerling!

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