Rushforth.net News and Notes

The 2007 Nevada legislature made a few changes that affect trusts and estates.  (References to “NRS” are references to the “Nevada Revised Statutes”.)

• NRS Chapter 115 was amended to increase the homestead exemption amount from $350,000 to $550,000. Existing homesteads are automatically covered by this amendment.
• NRS Chapter 145 was modified to allow the deduction of encumbrances in determining whether or not an estate was $200,000 or less for purposes of qualifying for summary administration.
• NRS Chapter 146 was modified to increase the size of an estate that may be set aside without probate administration from $75,000 to $100,000.
• NRS Chapter 153 was clarified to allow petitions to enforce the terms of a trust and to compel a trustee to comply with the terms of the trust and/or applicable law. The provision allowing a beneficiary to petition for redress now permits a court to award attorneys’ fees, to reduce the trustee’s compensation, and, if there is proof of a trustee’s neglect or breach of duty, the court may compel the trustee to pay costs of a court action (including attorneys’ fees) out of the trustee’s own pocket.
• NRS Chapter 164 was amended to simply the procedure for moving trusts from one court to another.
• NRS Chapter 166 was amended to clarify the laws relating to self-settled spendthrift trusts (also called asset-protection trusts). These were technical changes, but the primary change is that creditors are deemed to be aware of transfers that are made public by recording or filing in public records. This makes the two-year period during which trust transfers can be challenged easier to to calculate, especially as to claimants existing at the time of the transfer.
• NRS Chapter 21 was modified to clarify the exemption of self-settled spendthrift trusts.
• Other technical changes were made in NRS Chapters 132, 134, and 143.

This article will be updated as other pertinent changes to the law are discovered.

Under current estate tax law, the “applicable exclusion” for estate taxes is $2 million in 2007 and 2008, increasing to $3.5 million in 2009.  In 2010, the estate tax would be repealed, but in 2011 it would reappear, reverting to a $1 million exclusion.  In its 2008 budget resolution, the U.S. Senate voted to extend the 2009 estate tax “applicable exclusion” of $3.5 million through 2012.  Action is required by the House of Representatives to effectuate this change.  Attempts were made to increase the exclusion to $5 million and to eliminate the tax altogether, but those efforts failed.

The Pension Protection Act of 2006 [H.R. 4, 109th Cong, 2nd Sess. (2006)] was passed by Congress, and the President has indicated he will sign the bill. This act includes several provisions altering the tax treatment of certain charitable gifts and corporate-owned life insurance (COLI) arrangements.

• The bill allows an income tax exclusion for up to $100,000 per year of charitable distributions from regular and Roth IRAs. This does not apply to simplified employee pension plans or simplified retirement accounts. The distributions must be made directly to “50% charities”, which include most public charities but not private foundations, donor-advised funds , supporting organizations, or charitable remainder trusts. Qualifying charitable distributions will count towards the minimum distribution requirements. This provision applies only for distributions made in tax years beginning in 2006 or 2007.

• The bill imposes a temporary reporting requirement for certain exempt organizations with respect to the acquisition of interests in certain life insurance policies. This is in response to some abusive insurance plans that have involved charities without significantly benefiting the charities.

• The bill denies the deduction for contributions of clothing or household items that are not in good condition or that have minimal monetary value.

• The legislation modifies the calculation of the tax on private foundation net investment income so that more income is taxable.

• New rules apply to charitable contributions to donor-advised funds. Gifts to donor-advised fund have new substantiation requirements. The law now outlines how the excess business holdings rules of Code Sec. 4943 apply to donor advised funds, and it imposes the excess benefit excise tax under Code Sec. 4958 on certain distributions from donor advised funds to or for the benefit of disqualified persons.

• The favorable income, estate, gift, and GST tax treatment of Code Sec. 529 plans has been made permanent.

• Excise taxes apply to certain corporate-owned life insurance (COLI) arrangements.

You can search for the text of the legislation at http://thomas.loc.gov/.

On August 2, 2006 the Senate turned away Republican-sponsored tax reform legislation that would have adopted a $5 million “applicable exclusion” for estate tax purposes beginning in 2010. This proposal had been approved by the House of Representives on July 28. In addition to increasing the exclusion, the proposed legislation would have made the estate tax rate equal to the rate of the income tax on capital gains, reducing it from the current maximum estate tax rate of 46% (in 2006) to 15% (or 20% after the current capital gain tax law expires).