On July 14, 2017, Missouri Gov. Eric Greitens vetoed legislation that included a number of provisions related to estates and trusts.

Among the casualties of the veto were several provisions regarding estate and trust matters, the most significant being the Missouri Fiduciary Access to Digital Assets Act. Under this act, a user would be allowed to grant a fiduciary access to his or her electronic records or digital assets in a will, trust, power of attorney or other similar instrument. This issue is becoming more significant with the rise of online banking, trading and other financial services and will only increase in significance as more people abandon paper records for cloud services and other electronic storage. For now, Missouri is left without a uniform statute addressing these issues.

Other provisions in the vetoed bill provided that a no-contest clause is not enforceable against a person filing a motion, pleading or other claim for relief concerning a breach of trust by a trustee or the removal of a trustee.

The bill, if passed, also would have amended RSMo 456.8-808 of the Missouri Uniform Trust Code by, among other things, restating how a trust protector is appointed, explaining that any trust naming or designating a trust protector shall be deemed a directed trust and clarifying the liability of a trustee of a directed trust as related to the actions or directions of the trust protector.

Finally, SB 128 would have made it easier for a trustee to terminate a trust for being uneconomical by increasing the threshold value for such a termination to include any trust having a value of less than $250,000. The current threshold is $100,000.

In his veto letter, Greitens explained that he exercised his veto power because the “final bill violates the Missouri Constitution and contradicts other legislation passed this session and already signed.” Greitens’ primary argument in vetoing Senate Bill 128 was that it violated the Missouri constitution’s language that “no bill shall contain more than one subject which shall be clearly expressed in its title.” The stated subject of the bill was “relating to judicial proceedings,” but the governor felt the final bill contained many non-judicial items. Greitens made several other arguments in his veto message, highlighting what he believed to be inconsistencies between the bill and existing law and other potential issues. 

The veto session for the Missouri 99^th General Assembly is scheduled for Sept. 13, 2017. It is possible the Assembly may take up Greitens’ veto of Senate Bill 128 at that time, and if so, we will provide an update.

The Internal Revenue Service has released the Applicable Federal Rates (AFRs) for August 2017. AFRs are published monthly and represent the minimum interest rates that should be charged for family loans to avoid tax complications.

Here are the rates for August 2017:

The Section 7520 interest rate for August 2017 increases to 2.4 percent. The Section 7520 interest rate is the interest used in a common estate tax planning technique called a “grantor retained annuity trust” or “GRAT.” In general, the lower the interest rate, the more effective the transaction is for reducing estate taxes.

For more information, see the full listing from the IRS here.

Many people may think they have the option to leave their spouse nothing when they die, but almost every state has what is commonly called an “elective share” statute. These statutes work to protect a surviving spouse from being cut out of a deceased spouse’s estate plan, permitting the disinherited spouse to elect to take a portion of the estate. This is especially helpful, for example, in a situation in which someone has decided to leave nothing to his or her spouse and instead leave everything to another romantic partner.

Under an elective share statute, a surviving spouse may elect to take up to a certain amount of the estate of the deceased spouse, whether they have been completely left out or given a reduced share compared to what a surviving spouse would receive under the default probate laws of the state of residency. Generally, the amount of the elective share ranges from one-third to one-half of the surviving spouse’s estate, with the amount varying by state as well as depending on whether the surviving spouse has descendants from a previous marriage.

There are, however, ways around the elective share statutes. For example, most elective share statutes only apply to the probate estate (assets owned in an individual’s name alone) and a few other assets that will be brought back into the estate. This means that in some states (such as Illinois), assets that were transferred to a revocable trust during a deceased spouse’s life will not be subject to an electing surviving spouse. However, some states (such as Colorado) do include assets transferred to a revocable trust among those subject to an electing surviving spouse.

Another way to avoid being subject to an elective share statute is to enter into a premarital agreement. Because elective share statutes are generally just the default rights of a married person to their spouse’s estate, a premarital agreement will allow a married couple to waive such rights and specifically provide by agreement what they want the surviving spouse to receive. This may be especially prudent in situations involving a second marriage with children from a first marriage, or if the majority of a spouse’s assets are interests in a closely held business that would have to be sold to satisfy the elective share.

When creating an estate plan, it is important to keep in mind the role the elective share statutes can play if you do not plan accordingly. For more information regarding the elective share or other planning considerations, please contact an attorney in our Trusts & Estates group.

The Internal Revenue Service has released the Applicable Federal Rates (AFRs) for July 2017. AFRs are published monthly and represent the minimum interest rates that should be charged for family loans to avoid tax complications.

Here are the rates for July 2017:

The Section 7520 interest rate for July 2017 drops to 2.2 percent. The Section 7520 interest rate is the interest used in a common estate tax planning technique called a “grantor retained annuity trust” or “GRAT.” In general, the lower the interest rate, the more effective the transaction is for reducing estate taxes.

For more information, see the full listing from the IRS here.

Have you ever donated money to a good cause, such as emergency health care for an injured person or assistance for someone who has unexpectedly lost a loved one? Have you used a website such as GoFundMe to make your donation? Or even better, have you created, or considered creating, a campaign on such a website to collect money and then distribute the money to the person in need? If so, you may want to know the potential tax consequences and reporting requirements related to your generosity.

Tax consequences to the donor

First of all, as a donor, your contribution is not likely to be deductible from your income as a charitable contribution, as is a contribution to a 501(c)(3) organization, for example. Donations from one individual to another do not qualify as charitable contributions for income tax purposes. Instead, such a donation is characterized as a nondeductible gift to the individual receiving the funds.

While there is a transfer tax that applies to gifts, as I explained here, most individual gifts made to such a campaign are below the annual exclusion amount from gift tax ($14,000 in 2017). If so, as the donor, you would have no reporting requirement or tax consequence for making the gift. If, however, you make a gift in excess of that amount, you are required to file a gift tax return to report the gift along with all others you make during the year.

Tax consequences to the recipient

If you receive funds that are donated out of generosity by others, there is generally no tax consequence to you. In other words, (1) there is no limit to the amount of gifts you may receive, (2) there is no tax on the receipt of a gift, and (3) gifts are not taxable income.

That said, if you use a third-party payment processing website such as GoFundMe to collect donations and distribute them to you, that organization may be required to report your receipts to the IRS and to you on Form 1099-K. Such a payment processor’s threshold to report the receipts, with you as the “payee,” kicks in when $20,000 or more is received, or if 200 or more donations are made. Receiving a Form 1099-K, and knowing that it is reported to the IRS, may be troubling, especially if you don’t expect it. That said, this reporting requirement does not necessarily mean you have received taxable income. Nevertheless, you ultimately may need to explain to the IRS how and why you received the funds. If the receipts were clearly gifts made to you out of generosity, you should have no further issues.

This post assumes that all contributions are being made out of generosity. On the other hand, if you start a campaign to receive funds in exchange for providing services or products to the contributors, the receipts are more than likely income, and you will have to pay taxes on that income.

One other mistake to avoid

If you are generous enough to create a campaign to raise funds for a friend or loved one, it may be best to not to set up the campaign so that it names you as the payee and reports under your Social Security number. Even though your receipt of the gifts is not taxable income, the Form 1099-K, if required, will be reported with you listed as the “payee,” leaving you to explain the situation to the IRS.

Further, after your receipt of all of the funds, you will presumably then have to transfer the money to the person who is the intended recipient. After the funds are collected, you may very well be transferring more than $14,000 to the intended recipient, and in that case you are required to report the gift on a gift tax return. A better approach may be to set up the campaign with the ultimate intended recipient as the payee.

Lastly, if you expect substantial contributions for your cause, or if the ultimate beneficiary is a minor, setting up a trust for the benefit of the ultimate beneficiary rather than giving all of the money to him or her outright may be a good idea. Our Trusts & Estates attorneys can help structure such a trust in the way that best fits your situation.

On May 23, 2017, the Trump administration released its fiscal year 2018 budget, titled “A New Foundation for American Greatness.” In it, the administration provides another glimpse at its intentions regarding the future of the estate tax.

In the section titled “How to Make Things Right: New Policies for Jobs and Growth and New Spending Priorities,” it provides, in part, that,

“The Administration has articulated several core principles that will guide its discussions with taxpayers, businesses, Members of Congress, and other stakeholders. Overall, the Administration believes that tax reform, both for individuals and businesses, should grow the economy and make America a more attractive business environment.

“Tax relief for American families, especially middle-income families, should … abolish the death tax, which penalizes farmers and small business owners who want to pass their family enterprises on to their children.”

The last update on the estate tax was provided in a one-page document released by the administration on April 26, 2017, titled, “2017 Tax Reform for Economic Growth and American Jobs.” With respect to the estate tax, the April 26 tax plan is even less descriptive than President Donald Trump’s campaign proposal (discussed in an earlier article here), providing simply to “Repeal the death tax” as a part of individual tax reform.

The April 26 tax plan and the FY 2018 budget proposal do not address the gift tax, generation-skipping transfer tax, and whether a carryover basis regime would be implemented. Thus, many questions remain, including whether a tax reform plan will even be able to be passed in the near future. We will continue to monitor the situation and will let you know of any new developments.

The Internal Revenue Service has released the Applicable Federal Rates (AFRs) for June 2017. AFRs are published monthly and represent the minimum interest rates that should be charged for family loans to avoid tax complications.

Here are the rates for June 2017:

The Section 7520 interest rate for June 2017 stays at 2.4 percent. The Section 7520 interest rate is the interest used in a common estate tax planning technique called a “grantor retained annuity trust” or “GRAT.” In general, the lower the interest rate, the more effective the transaction is for reducing estate taxes.

For more information, see the full listing from the IRS here.

As one gets older and less able – or even willing – to deal with financial responsibilities, it is common to turn to others to help take care of your finances. The most comprehensive tool to use in such a case would be a financial durable power of attorney, in which you, as principal, name someone as your agent to handle financial and legal affairs on your behalf. Another commonly used method is naming an adult child as a co-owner or a co-signer on a bank account. A co-owner has full access to the account and will legally own the proceeds of the account after the other account owner’s death. A co-signer simply has authority to write checks and draw on the account.

Adding someone to an account as co-owner or co-signer is a much simpler method of allowing someone to take charge of a specific account and its checkbook. While this can certainly be effective in giving access to your money, use caution in choosing between those two options.

First and foremost, in either case you want to make sure you name someone you trust. As a co-signer or co-owner, the person designated will have full access to your account and therefore must be relied upon to act in your best interests. Too many times there are unfortunate cases reported where money is improperly taken from the original account owner, sometimes leaving them with nothing but an empty account.  

Second, some clients will try to avoid probate simply by naming a child or other person as a co-owner on the account (designating a co-signer does not have the same probate avoidance effect). The main point to consider in this scenario, however, as mentioned above, is that when the client dies, the remaining account balance will pass to the co-owner, as his or her property. When putting an estate plan together, some clients want all of their assets to pass equally to their children after their deaths. But the child named as co-owner will inherit that entire account, with no legal obligation to share it with siblings or anybody else. So give careful thought as to whether that’s the result you want, or if you trust that child to “split” the account with siblings after the fact. Even if the child respects your wishes and gives the money to his or her siblings, that child could have negative gift tax consequences as a result. 

While naming an account co-owner or co-signer can be useful for getting someone to help with your finances, using a power of attorney is still preferable, because it will give your agent access to your financial accounts plus the authority to handle all of your other legal and financial affairs, if necessary. Further, an agent is acting on your behalf and therefore generally has a fiduciary duty to act in your interest, while a co-owner or co-signer does not. For more information on this topic, please contact one of the attorneys in our Trusts & Estates practice group.