Estate & Trust Law Archives

In 2015, the Rhode Island Division of Taxation issued Declaratory Ruling 2015-01. The question at issue was whether a non-Rhode Island resident decedent’s interest in a multi-member LLC that owned real property was sufficient to subject the decedent’s estate to the Rhode Island Estate Tax. Generally, property has a tax situs in Rhode Island if it is either real estate or tangible property with an actual situs in Rhode Island, or the property consists of intangible personal property and the decedent was a resident. Rhode Island General Law s. 7-16-34 states that a membership interest in a limited liability company is personal property, but since the member’s interest is in the LLC’s property at large, an interest in a multi-member LLC is intangible personal property. As such, the Division of Taxation held in Ruling 2015-01 that the non-resident decedent’s less than 100% interest in the LLC is not subject to the Rhode Island estate tax and, consequently, would not require an estate tax lien discharge.

By contrast, a single member LLC is disregarded, so is considered the same as the individual owner, unless the LLC is taxed as a corporation for federal tax purposes. If no election is made to be taxed as a corporation, the LLC is disregarded, and the value of the real property owned by the LLC is included in the non-resident decedent’s gross estate. This may be an unwelcome surprise, especially as the default is to tax a single member Rhode Island LLC as a sole proprietorship- so a non-resident one must affirmatively elect to be taxed otherwise to avoid estate taxes being imposed on the property.

In 2021, where a non-resident’s gross estate exceeds $1,595,156.00 and includes real estate (including real estate owned by the decedent’s single-member LLC) or tangible personal property located in Rhode Island, the decedent’s estate will be required to file an estate tax return and pay any related tax imposed. The Rhode Island Estate Tax is calculated based on the total gross estate and is not based solely on the Rhode Island property.

In order to avoid this result, the non-resident owner of a single member LLC holding real estate in Rhode Island may wish to consider adding additional members (even a small dilution will remove the “single member” stigma). The question of who, and in what proportion, to add members and divest of single member status is an important estate and business planning consideration, and the decision needs to be made in light of one’s existing estate plan, desired changes, and current operating documents. For more information, please contact your PLDO estate and tax planning attorney or Senior Counsel Leah A. Foertsch in our Boca Raton, Florida office at 561-362-2030 or by email at lfoertsch@pldolaw.com and PLDO Partner Gene M. Carlino in Rhode Island at 401-824-5100 or in Florida at 561-362-2030 or email gcarlino@pldolaw.com.

Disclaimer: This blog post is for informational purposes only. This blog is not legal advice and you should not use or rely on it as such. By reading this blog or our website, no attorney-client relationship is created. We do not provide legal advice to anyone except clients of the firm who have formally engaged us in writing to do so. This blog post may be considered attorney advertising in certain jurisdictions. The jurisdictions in which we practice license lawyers in the general practice of law, but do not license or certify any lawyer as an expert or specialist in any field of practice

Many people do not consider protecting assets for future long-term-care costs until they, or their spouse, requires skilled nursing care. Others are aware of the high price of such care (in some cases more than $10,000 a month) but believe that they have saved enough in retirement to defray the cost. In either case, it is a mistake to not consider planning for such costs as a component of an estate plan. A lack of such planning can result in the total depletion of a person’s assets, which they worked hard to earn and save throughout their lifetime. Particularly so since some people spend years of their lives in nursing homes.

Planning for long-term-care typically involves the creation of an irrevocable trust. The technique is to transfer assets to the trust, of which the creator of the trust (known as the grantor) is, generally, not a beneficiary. After a five-year period has elapsed, should the grantor require skilled nursing, the assets contained within the trust will not be reported on a Medicaid application. The term “five year lookback” refers to the State’s ability to review an applicant’s financial records for the sixty months prior to the date of the application to determine whether the applicant has transferred any assets of value without consideration – in other words, to determine whether the applicant has made any gifts. If the applicant has indeed made a gift, the State will deny the Medicaid application until a so-called “penalty period” has expired. The penalty period is the amount of months calculated by taking the amount of the gift and dividing it by a number called the “penalty divisor,” slightly north of $9,000 for 2020. For this reason, the earlier a person creates and funds an irrevocable trust, the better.

While the word “irrevocable” may conjure up feelings of anxiety, estate planners can build in some flexibility. For starters, the grantors of the trust can also serve as the trustees, making investment and distribution decisions. The trusts can also be “income tax defective” such that gains within the trust are paid by the grantor at the lower, individual income tax rates, rather than at the higher trust tax rates. While grantors cannot be beneficiaries of the principal, irrevocable nursing home trusts can be drafted so as to allow for distributions of income to the grantors. Bear in mind, however, that this exposes the income to nursing home costs. Also, the grantors’ family can be the beneficiaries of the trust – children, grandchildren, parents and siblings. What this means is that grantors can make distributions to family members and ask for the money back, in the event the grantors find that they have overfunded the trust. However, it is important to recognize that the beneficiaries cannot be under any legal obligation to give the money back. Having a side agreement with the beneficiaries requiring them to refund any money distributed would result in the assets of the trust being countable resources for Medicaid purposes.

Real property is an ideal asset to transfer into an irrevocable trust as grantors can reserve a life estate in the deed and continue to live in the property. Similarly, grantors and trustees can enter into occupancy agreements concerning investment properties transferred into an irrevocable trust. Real property can be sold from the Trust with the proceeds deposited into the Trust account. Importantly, selling real estate and depositing the proceeds does not re-trigger the five-year clock. The clock continues to run and does not reset.

Irrevocable trusts have many additional benefits, beyond protecting assets from nursing home costs and preserving wealth for future generations. As with other trusts, irrevocable trusts are will alternatives, transferring assets to future generations without the need to pass the assets through the probate process. Probate is a court process that must be used when a person passes owning assets in his or her name. It is time-consuming, expensive and results in a complete lack of privacy. The terms of irrevocable trusts can provide protection for beneficiaries by reducing and/or eliminating the possibility that a third-party such as a divorcing spouse, business creditor, consumer creditor or personal injury claim creditor can satisfy a judgment against the beneficiary from his or her share of the trust estate. Further, if the grantors have children or grandchildren with special needs, the irrevocable trust can include terms so as to prevent disqualification of the special needs beneficiary from governmental benefits upon the death of the grantor.

No estate plan should be finalized until the planning for the cost of long-term-care is thought through. Please contact PLDO Trust and Estate Partner Rebecca M. Murphy for further information at 401-824-5100 or email rmurphy@pldolaw.com.

A charitable remainder trust (“CRT”) is typically established as an irrevocable trust with an income stream reserved for the person who creates the trust (“the grantor”). When the income stream terminates, the remaining interest in the trust is donated to a charity. A significant benefit of a CRT is that the grantor is entitled to an income tax deduction calculated on the value of the remainder interest to be distributed to the charity.

But what happens when something has changed in the grantor’s life since they established a CRT and they no longer want or need the income stream? For example, the grantor may be going through a major life event such as a divorce, remarriage, or death of a spouse. Or the grantor may be seeking liquidity or interested in leaving more money to their heirs or simply tired of the administrative hassle and expense of the CRT. One option is for the grantor to sell his or her income stream.

An individual’s income stream in a CRT is a capital asset that can be bought or sold just like any other capital asset such as stocks, bonds or real estate. Since 2000, a substantial private market has developed to buy and sell CRT income interests and reports are that sale activity for CRT income interests has surged in 2020. Generally, the sellers of their income streams are worried about their own mortality due to the COVID-19 virus and a desire to have liquidity on hand during these uncertain times and stock market volatility.

When an income stream is sold, the price is determined by computing the present value of the interest. A surprising number of individuals are seizing the opportunity to adjust their risk profile to the markets by selling their CRT income interests. If you have an income interest from a CRT and are interested in learning more about terminating the interest, please contact PLDO estate and trust attorney Jason S. Palmisano at 561-362-2030 or email jpalmisano@pldolaw.com. Attorney Palmisano will review your situation and forge a plan that can help achieve your goals.

Homeowners challenged to stay current with their mortgage payments due to the COVID-19 crisis are finding relief in several federal emergency measures provided in the Coronavirus Aid, Relief, and Economic Security Act or the CARES Act. Two provisions include a 60-day foreclosure suspension or moratorium on filing new foreclosure actions or finalizing a foreclosure judgment or sale, and mortgage forbearance for federally backed mortgage loans. Federally backed mortgages include Freddie Mac, Fannie Mae, FHA, VA, and USDA loans. To find out whether you have a federally backed mortgage, call your servicer, which is the company from whom you receive your monthly statements. Even if you do not have a federally-insured mortgage, your lender may still offer relief during this time, as well.

Understanding Mortgage Forbearance

Widely discussed but often misunderstood is the mortgage forbearance provision. Mortgage forbearance is a temporary suspension of your mortgage payments and may also be called a mortgage deferment. If you have a federally insured loan, you are likely eligible for a twelve-month forbearance, as well as other loss mitigation opportunities. Under the CARES Act, homeowners with federally insured loans are eligible for an initial forbearance period of up to 180 days, with a possibility of another 180-day extension. Since this legislation was prepared and enacted quickly, many individuals, as well as servicers, don’t necessarily understand what it encompasses. For instance, many homeowners are being told they are only eligible for a three-month forbearance. However, the legislation gives the homeowner 180 days, but allows the lender to approve the forbearance in 90-day increments. This means that the homeowner must contact the lender before the expiration of each 90-day period to extend the forbearance. The bill also directs servicers of federally backed loans to give homeowners several options to pay back the forbearance, including making lump sum payments or spreading the payments over time.

When considering entering into a mortgage forbearance, a homeowner should ask the following:

1. Does the forbearance plan contemplate payment in full at the end of the forbearance period? Many homeowners are surprised when the lender asks for the lump sum due at the expiration of the forbearance. It’s of little real help to delay payments by 90 days, and then be required to pay in full on day 91. During any forbearance period, the servicer cannot add fees or penalties to your account. However, regular interest will continue to accrue. Make sure you understand what the servicer will expect you to pay, and the timing of that payment.

2. Do you still need to make escrow payments during the term of your forbearance? If you escrow, you may be required to continue to pay your escrows for taxes and homeowner’s insurance.

Forbearance Process Steps

How do you get a forbearance if you have a federally-insured mortgage?

First, call your loan servicer. Given the huge demand and high call volume, be prepared to be on hold for much longer than would be considered normal. Tell your servicer that you have a financial hardship due to the COVID-19 pandemic. This attestation is all that is needed; the servicer cannot request additional evidence of hardship. This is not like the 2008 mortgage crisis where servicers were requiring mass amounts of paperwork proving the hardship before considering a modification. Then find out what, if anything, will be reported to the credit bureaus. In addition, make sure to get everything in writing. This includes the initial forbearance period and the timing and amount of repayment. Keep these records. Do not rely on any oral representations. During the term of your forbearance, continue to monitor the mortgage statements you receive to make sure they are correct. If your income is restored during the forbearance period, contact your servicer and start making your payments again. Even with these options, if you can make your mortgage payment, continue to do so. If you find that you cannot make your payments and pay for daily necessities, that is the time to call your lender, whether or not you have a federally backed mortgage. If you do not have a federally insured mortgage, your lender may still offer some options. Do not stop paying your loan without contacting your servicer. If you do, the bank will be able to proceed with foreclosure at the end of the foreclosure suspension period.

Be Aware of Scams

Unfortunately, there are scammers out there looking to take advantage of the confusion and anxiety caused by the pandemic. They may promise you immediate relief from your lender or to save you from foreclosure. Hallmarks of a scam include: charging high upfront fees to negotiate your forbearance/foreclosure; promising results; asking you to sign a deed, even if the deed will be “held in escrow,” and asking you to make your mortgage payments directly to them or a third party. Under all circumstances, if you are entering into a mortgage forbearance, make sure you understand the terms. Forbearance is not loan forgiveness. Eventually, the sums will become due.

For more information on the mortgage relief program and process, please contact your PLDO attorney or PLDO estate, trust and tax attorney Leah A. Foertsch at 561-362-2030 or email lfoertsch@pldolaw.com.

On Friday, April 3, 2020, Rhode Island Secretary of State issued revised Standards of Conduct for Notary Publics in the State of Rhode Island and Providence Plantations, adding Section 8, which authorizes Remote Online Notarization (RON) of legal documents during the COVID-19 crisis. This revision aligns with Governor Gina Raimondo’s Executor Order 20-13 mandating that Rhode Islanders stay at home and only leave for essential tasks, like going to necessary doctor’s appointments and the grocery store.

The new Section 8 cites the following requirements for RON, which are more broadly outlined below: (i) properly identifying the person whose signature is being notarized, referred to as the principal, (ii) creating and retaining an audio/visual record of the entire process, (iii) returning the signed documents to the notary, and (iv) registering with the Secretary of State’s office. In an effort to validate their authority, the Standards state that nothing stated in the Standards supersedes the Rhode Island Notarial Act, which can be found in the General Laws at Section 42-30.1.

Identification: A remotely located individual is defined as anyone who is not in the physical presence of the notary. This is accomplished by expanding the definition of “personally appear” as set forth in the Standard prior to revision to mean communicating between the notary and principal simultaneously by sight and sound through an electronic device at the time of the notarization.

The remote notary must be able to reasonably identify the principal through one of three ways. First, the remote notary can have personal knowledge of the principal. Under existing law personal knowledge is defined as dealings sufficient to provide reasonable certainty regarding the legal identity of the individual.

The second method is for the remote notary to obtain satisfactory evidence of the identity of the principal through two different types of identity proofing. The requirement for two different types of identity proofing is more stringent than the statutory requirement for in-person notarizations. Identity proofing in this context is defined as a review of personal information from public or private data sources. Presumably this means that during the electronic communication, a remote notary that does not have personal knowledge of the principal can review the same types of documents that would be provided during an in-person notarization. Those include a passport, driver’s license, or government-issued identification card that is either current or expired not more than three (3) years before performance of the notarial act.

If the remote notary does not have personal knowledge of the principal or the principal does not have two different types of qualifying identity proof, the third method the remote notary can use to identity proof is to take the oath or affirmation of a credible witness who is either (i) in the physical presence of the remote notary or the principal at the time of the notarization, or (ii) is remotely located but able to communicate with the notary and the principal through an electronic device at the time of the notarization. The credible witness must have personal knowledge of the remotely located individual and must also be identity proofed by the notary using one of the first two methods above. This third category of remote notarization creates the possibility for the notary, the principal, and the witness to be in three different physical locations while communicating only through the electronic device.

Creating an A/V Record. The notary must create an audio/visual recording of the performance of the notarization and retain the recording or cause the recording to be retained by a repository designated by or on behalf of the notary public for at least ten years. At present, the Secretary of State’s website identifies two designated repositories. In a somewhat obtuse fashion, the Standards state that if Rhode Island law requires a different time period, the record must be retained for that different period of time.

If the principal is physically located outside of the geographic boundaries of the State of Rhode Island, a Rhode Island notary can only remotely notarize the document if (i) the record is intended for filing with or relates to a matter before a court, governmental entity, public official, or other entity subject to the jurisdiction of the United States or, (ii) involves property located in the territorial jurisdiction of the United States or a transaction substantially connected to the United States. Presumably this would include notarizing a self-proving affidavit to a Will. In both cases, the notary public must have no actual knowledge that the act of making the statement or signing the record is prohibited by the laws of the jurisdiction in which the remotely located individual is physically located.

Mailing the Signed Document(s) Back to the Notary. Once the document has been signed, the Standard requires that the principal mail the signed document(s) to the notary public for certification and execution with the notary’s signature and official stamp. The term “mail” is not defined. A literal reading of this requirement suggests that, at least potentially, the notarization aspect of a document that was hand delivered after being electronically notarized could be invalidated. To comply with the Standard, and protect the integrity of the documents, once the signing process is completed the notarized document should be placed in the envelope that is used to mail it and sealed as part of the visual record and the envelope should be retained with the document when received by the notary. Once the document is received by the notary, the notary should complete the notary clause and place their stamp on the document. The Standards make clear that the official date and time of the notarization is the date and time when the notary public witnessed the signature via the electronic devices that provided the audio/video presence and not when it is completed by the notary.

Registering with the Secretary of State. Before a Rhode Island notary can offer remote online notarization services, he or she must register with the Secretary of State’s office and provide the name of the approved repository and an exemplar of the notary’s signature and official stamp. The Standards make clear that the ability to remotely notarize is only applicable as of the effective date of the revised Standards (April 3, 2020) and will cease automatically when the state of emergency declared by the Governor in response to COVID-19 is terminated.

Pannone Lopes Devereaux & O’Gara attorneys will continue to monitor the RON and other important issues to keep you informed. For further information and answers to your questions, please contact PLDO’s estate, trust and tax attorneys, Gene M. Carlino, Partner, and Bernard A. Jackvony, Of Counsel, in the firm’s Rhode Island office at 401-824-5100 or in our Florida office at 561-362-2030 or email gcarlino@pldolaw.com and bjackvony@pldolaw.com.

Pets are as loved as any other member of a family these days. Although our pets can’t inherit money, you can protect them if they outlive you. There are two main considerations when planning for your pets in the event of your death or incapacity: placement and financial support. The structure for this care can be handled by way of a Last Will and Testament or a Trust. Through the Last Will and Testament, you can provide direction regarding care, as well as an outright gift to the caregiver. However, the Will is only effective at your death and you have to trust the caregiver to follow your directions without being bound to do so. The preferred method, and the one to be addressed most extensively herein, is the Trust.

By use of a Trust, you can provide for continuity of care upon your disability, incapacity, unavailability, or death. The Trust provides mechanisms to ensure the money left is used for your stated purpose, and detailed instructions regarding your intentions can be communicated. Generally, a pet trust is valid for the life of the pet (or the last surviving pet, if more than one). The properly drafted Trust provisions will cover primary and alternate caregivers, directions regarding day-to-day care as well as extraordinary care, and final disposition of the pet.

The caregiving function can be separated from the financial management of the Trust assets, and it is often advisable to appoint one person as caregiver and a separate person as trustee. The chosen caregiver should be someone who will provide the same day-to-day care and affection as the pet is accustomed to receiving. Therefore, it is important to consider whether the caregiver is capable and in a position to do so. For instance, if your chosen caregiver already has a dog, and your dog is not suitable for a multi-pet household, perhaps you should reconsider. Successor caregivers should be included in the Trust, in the event your first appointee is unable to fulfill his duties.

Your chosen trustee will be responsible for managing and distributing the trust assets to the caregiver. The trustee is a fiduciary and must act responsibly in carrying out your expressed wishes. Once again, it is vitally important to be as specific and as clear as possible in outlining your wishes and objectives, with respect to your pet’s care and comfort, including specific information regarding veterinary care and intervention. If the value of the property left to care for the pet exceeds the amount required (as determined by the court), the excess property will be distributed back to you or to your estate.

In order to ensure your appointees comply with your wishes, a trust protector can be appointed. The trust protector has the authority to enforce and ensure the property left through the pet trust is properly handled and spent to carry out your wishes, and can remove a non-performing trustee.

If you have not considered your pets in your estate plan, now may be a good time to do so. If you would like further information, please contact PLDO Senior Counsel Leah A. Foertsch in our Florida office at 561-362-2030 or email lfoertsch@pldolaw.com.

When preparing to send your child off to college, there are many things parents need to consider. One item that is likely not on the to-do list is having an estate plan for your college student. Typically, young adults heading off to college are 18 years old and technically legal adults responsible for all decisions, including those regarding their health.

Even though your child may still be on your health insurance, after a child turns 18, parents no longer have a legal right to their child’s medical records and/or healthcare-related information. This means that if your child has a medical emergency while away at college, you may not be able to have access to their information or make decisions on their behalf should they be unable.

Having an estate plan in place that includes the following three legal documents can alleviate this concern and allow you to help your child if a medical emergency were to occur.

1. HIPAA Authorization Form. This legal document allows an individual’s health information to be disclosed to a designated third-party.

2. Healthcare Power of Attorney. This legal document allows an individual to elect another to make healthcare decisions on behalf of the individual if they are unable to make decisions regarding their own healthcare.

3. Durable Power of Attorney. This legal document allows an individual to give authority to another to make financial decisions, sign legal documents, and sign financial transactions on behalf of the individual if they become mentally incapacitated.

Estate planning is not only applicable to the wealthy and older generations. It can be an extremely critical tool for parents and their children, particularly those heading off to college. If you would like to discuss your child’s estate planning, please contact PLDO Associate Katherine D. Bishop at 401-824-5100 or email kbishop@pldolaw.com.

As we approach the end of 2019, taxpayers need to be mindful to position themselves to minimize their state and federal income tax liability, which is due by April 15 of 2020.This is accomplished by accelerating deductions and deferring income. To accelerate deductions, an individual taxpayer should make sure all property tax payments for the entire calendar year up to the $10,000 limit are completed before December 31st, even if your city or town allows you to pay in installments into the next year. Another option is to make an extra mortgage payment and deduct the mortgage interest. For business taxpayers, consider purchasing a new piece of equipment or other capital asset. Completing that purchase now may qualify the business for a deduction of 100% of the purchase price if the asset is placed in service this year. On the income deferral side, you may want to avoid trying to collect delinquent accounts until January to push some income into next year or ask for smaller up-front payments for projects that span this year and next. Also, consider sending out December invoices after the first of the year.

If you have established an irrevocable trust that is subject to income tax, year-end tax planning is particularly important. This type of trust reaches the highest rates of income tax on earned income at very low levels of income. Distributing the income out of the trust to a beneficiary will create a deduction at the trust level and cause the income to be taxed at the beneficiary’s level where it is likely to be taxed at a lower rate. If you miss the December 31st deadline, there is a safe harbor rule known as the “65-day rule.” This rule provides that distributions from a trust within 65 days after the close of the calendar year can be treated as having been made in the prior year. Trustees who use this method may get flak from their beneficiaries who have already filed their return as the beneficiaries will now have to amend their returns.

The 2018 Tax Cut and Jobs Act brought us something known as the Opportunity Zone. The new law is designed to encouraged investment in specific designated areas of each state in exchange for a bundle of tax benefits. Simply put, a taxpayer can sell a capital asset such as stock held for investment or a rental property and if the proceeds are invested directly or indirectly through a fund in a property located within an opportunity zone within 180 days, the taxpayer can defer the recognition of the gain on the asset sold for seven years. Under the law, if the investment in the opportunity zone is completed before January 1, 2020, the taxpayer will not have to pay any tax on 15% of the deferred capital gain in year seven.

Heading Into 2020
The IRS has recently issued new proposed life expectancy tables. These tables were last revised in 2002. As you might expect, the new tables recognize that people are now living longer. This will translate into lowering the amount that must be distributed each year from your IRA and reported as income. The bad news is the proposed regulations are not likely to be final and effective until 2021.

Many individuals have decided to put off estate tax planning given what they consider are extraordinarily high exemption levels. For 2019, an individual can pass on $11,400,000.00 without incurring an estate tax and a married couple can pass on twice that much. The law sunsets on January 1, 2026 and the exemption returns to the $5,000,000.00 level (adjusted for inflation). Clients currently sitting below the $5.0 million dollar mark should not be lulled into complacency by the $11.4 million dollar exemption level. It is very reasonable to assume that assets that are slightly below the lower threshold will appreciate in value beyond that mark by the time the law sunsets in 2026. This will expose their estates to an estate tax at 40%. The IRS has recently issued guidance that those that do plan now can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025.

If you have questions about the information presented here or need assistance to consider the best tax strategies for you, your family or your business or about estate and trust planning, please contact PLDO Partner Gene M. Carlino in Rhode Island at 401-824-5100 or in our Florida office at 561-362-2030 or email gcarlino@pldolaw.com.

Last spring the United States House of Representatives by an over whelming majority passed the most significant changes to the IRA/401(k) laws since their original passage in the mid 1970’s. If signed into law these changes will:

allow part-time workers who work less than 1,000 hours a year to contribute to a 401(k) plan;
allow contributions to IRAs after the existing age 70.5 age limit;
delay the age for the start of required minimum distributions to 72;
allow penalty free early withdrawals from a retirement account of up to $5,000 per parent f or the birth or adoption of a child; and,
allow small employers who may not otherwise be able to afford the administrative costs of a 401(k) plan to band together and offer a pooled 401(k) plan; and,
liberalize the rules related to annuity investments for 401(k)s with the goal of creating lifetime income retirement benefits.

To offset the Federal Government’s loss of tax revenue caused by these changes, the proposed law provides, with certain exceptions, that a beneficiary of deceased person’s IRA or 401(k) can no longer stretch out distributions over the beneficiary’s own lifetime. Under the new proposed law, a beneficiary must now withdraw the entire plan balance within 10 years of the date of the original account owner’s death. The exception applies when the beneficiary is a spouse, a minor child or a disabled or terminally ill person. Unfortunately, the exception does not extend to a trust established for a person in this class unless all other beneficiaries in the trust fit are in one of these classes, which is uncommon.

Before the new law can be presented to the President for signature, the Senate must pass the bill passed by the House. To avoid debate on the Senate floor, the bill must pass unanimously. As of the last count, three US Senators were holding out on commitments to vote for passage. If the bill is not passed unanimously by the Senate there appears some risk that the bill will not make it to the Senate Floor due to competition with other legislative and political priorities. Stay tuned and we will be sure to update you. For more information about the legislation or estate planning, tax and retirement strategies and retirement planning, please contact PLDO Partner Gene M. Carlino in Rhode Island at 401-824-5100 or in our Florida office at 561-362-2030 or email gcarlino@pldolaw.com.

With the Fed’s recent interest rate cut and more interest rate reductions likely on the way, this may be a good time to take advantage of the low interest rate environment to transfer assets to your beneficiaries with minimal tax consequences and significant benefits to your beneficiaries.

One strategy is to create a trust called a grantor retained annuity trust (“GRAT”) and transfer highly appreciated assets to the GRAT. The terms of the GRAT would state that you would receive a stream of income payments (the annuity) for yourself over a certain term of years. When the term designated for the annuity expires, the beneficiaries you’ve designated would receive whatever assets are left in the GRAT.

When the GRAT investments outperform the IRS mandated minimal interest rate for the annuity (currently, 2.2%), the excess passes to your beneficiaries free from any federal gift tax. This is easier to accomplish when the interest rate is low, making a GRAT a more effective estate planning strategy in a low interest rate environment.

If you are charitably inclined, now may be a good time to create a Charitable Lead Annuity Trust. A Charitable Lead Annuity Trust, or “CLAT,” is similar to a GRAT except that, instead of you receiving the initial stream of annuity payments, you designate a charity to receive them. When the Trust ends, the remainder goes to the beneficiaries named in the Trust.

As with a GRAT, if the CLAT’s investments out-earn the IRS mandated interest rate, the excess passes to your beneficiaries are free from any federal transfer taxes. This is another instance in which very low interest rates can mean the opportunity to pass on large amounts to your loved ones while minimizing your tax bill.

A third strategy that might be useful is a low-interest loan to family members. You are generally required to charge an adequate interest rate on the loan for the use of the money, or interest will be deemed to be charged for income tax and gift tax purposes. However, with the current low interest rates, you can provide loans at a very low rate and family members can effectively keep any earnings in excess of the interest they are required to pay you. If you would like to discuss your estate and trust planning options, please contact PLDO Senior Counsel Jason S. Palmisano in our Florida office at 561-362-2030 or email jpalmisano@pldolaw.com.