Author: Michele Braverman

The U.S. Department of the Treasury has released its General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals. Commonly referred to as the Greenbook, this document lays out tax proposals that would support President Biden’s policy priorities if he is reelected to a second term. 

A major focus of this year’s Greenbook is increasing taxes on corporations and high-income individuals to ensure that “the wealthy and corporations pay their fair share,” says the Biden administration. 

Some of the proposals in the administration’s budget would modify estate and gift taxation, helping to generate an estimated $97.2 billion in additional revenue over 10 years. These proposals are still a long way from being enacted, but they bear monitoring from an estate planning perspective. 

The Greenbook Proposes Closing Estate and Gift Tax Loopholes

Tax proposals in the Greenbook are not proposed legislation; each budget item would need to be introduced and passed by Congress to become law. 

However, the Greenbook provides insight into tax matters the Biden administration could prioritize in a second term. Among them are closing what the Greenbook calls “estate and gift tax loopholes” that “allow the wealthy to reduce their tax by using complicated trust arrangements to transfer their assets to their heirs.” 

Three proposals in the Greenbook address the following trust and estate tax issues: 

• Modifying grantor trust rules that allow significant value to be removed from an estate without being taxed
• Reclassifying certain appreciated asset transfers so they are subject to capital gain taxes
• Minimizing or eliminating valuation discounts for some intrafamily asset transfers

Grantor Trusts

The Greenbook outlines a plan for modifying tax rules for grantor trusts, including grantor retained annuity trusts (GRATs).  

According to the Greenbook, grantor trusts and GRATs allow taxpayers to use three common tax planning strategies to significantly lower their combined federal income, gift, and estate tax burden: 

• Funding a GRAT with accounts and property (assets) that the grantor expects to appreciate and structuring the GRAT in such a way that incurs very little gift tax when appreciated assets are transferred to remainder beneficiaries 
• Selling an appreciating asset to a grantor trust of which the taxpayer is considered the owner for income tax purposes, allowing the taxpayer to remove future asset appreciation from their gross estate without the recognition of capital gains on the sale or the payment of gift or estate tax 
• Reselling an appreciated asset from the grantor trust back to the trust’s owner, making the purchase disregarded for income tax purposes and not subject to capital gains tax 

The Greenbook proposes the following changes to grantor trusts:

• Recognize sales between a grantor and a grantor trust as taxable and require the seller to pay taxes on them. 
• Treat the payment of grantor trust income taxes by the trust owner as a taxable gift to the trust that would occur on December 31 of the year in which the tax is paid (unless the owner is reimbursed by the trust that same year). 
• Impose a minimum value on a GRAT’s remainder interest for gift tax purposes.
• Require a minimum and maximum term for GRATs.
• Prohibit a GRAT grantor from engaging in tax-free exchanges of trust assets.  

Accounting firm BDO USA writes that these proposals would overturn the Internal Revenue Service rule that disregards grantor/grantor trust transactions as taxable events. The GRAT proposals would also effectively eliminate short-term GRATs used as part of a “rolling GRAT strategy” and prohibit “zeroed-out GRATs,” says BDO.

Appreciated Property Transfers

Another reform proposed in the Greenbook that has trust and estate planning implications deals with the taxation of capital income (i.e., capital gains tax). 

Under current tax law, when someone (a donor) gifts an appreciated asset to another person (a donee) during the donor’s lifetime, there is no realization of capital gain by the donor when they make the gift. In addition, the donee does not have to recognize the capital gain until they dispose of the appreciated asset. 

And when a deceased person passes on an appreciated asset upon death, the recipient receives an adjusted basis equal to the asset’s fair market value at the time of the decedent’s death. If the basis adjustment is a step-up, the postdeath transfer would allow the recipient of the gift to avoid federal income tax on asset appreciation that occurred during the decedent’s lifetime, as all such gain had been wiped out by the adjustment in basis. 

The Greenbook describes these rules as giving preferential tax rates on capital gains that largely benefit high-income taxpayers, resulting in many of them paying a lower tax rate than middle-income earners. Proposals in the Greenbook would tax unrealized capital gains on transferred appreciated property when the following “realization” events occur: 

• Transfers of appreciated property by gift or death
• Property transfers to or from most types of trusts
• Property distributions from revocable grantor trusts to persons other than the trust’s owner or their spouse

BDO calls the proposal a radical departure from how capital assets are currently recognized as income. The addition of realization events would consider a sale of a capital asset to have occurred even when there was no sale, unlike now, when there must be a sale or property exchange to generate a capital gain. 

Taxpayers may not have the money to pay the capital gains tax incurred from a new realization event because the transferor does not receive cash in exchange for the property transferred.  Thus these transferors would need to engage in extremely careful planning to avoid liquidity issues surrounding a deemed sale. This could result in needing to sell assets other than those transferred in order to pay the tax.

Intrafamily Asset Transfers

Family members can transfer hard-to-value assets from one member to another to lower their tax burden. The Greenbook cites two ways this can be achieved: 

• Transfer portfolios of liquid assets, such as marketable securities, into partnerships or other entities; make intrafamily transfers of interests in those entities (rather than transferring the actual liquid assets); and then claim entity-level discounts for valuing the gifted asset. 
• Make intrafamily transfers of partial interests in other hard-to-value assets (e.g., art, real estate, and intangibles), allowing each family co-owner to claim “fractional interest discounts.” 

According to the Treasury, these strategies take advantage of lack of marketability and lack of control factors used to determine the fair market value of such partial interests, but they are not appropriate when families act together to maximize their economic benefits and artificially reduce the transfer tax due. 

A Greenbook proposal to reform these intrafamily asset transfers would 

• reduce or eliminate discounts related to marketability and control when transferring partial interests within a family if the family collectively owns at least 25 percent of the property; and
• make the transferred partial interest’s value equal its pro rata share of the total fair market value of all interests in the property held by both the transferor and their family members. This collective fair market value would be calculated as if all interests in the property were owned by a single individual.

This proposal would replace section 2704(b) of the Internal Revenue Code. 

“Family members,” for purposes of the proposal, would include the transferor, ancestor and descendants of the transferor as well as the spouse of each family member. 

Stay Ahead of Trust and Estate Tax Changes

Themes of fairness and cracking down on what the Biden administration considers tax avoidance strategies by wealthy individuals figure prominently in this year’s Greenbook. 

The future of Biden’s fiscal year 2025 budget recommendations is highly uncertain. But proposed changes to grantor trusts, intrafamily asset transfers, and unrealized capital gains could have a major impact on how wealthy families approach estate and gift taxes and necessitate new and creative estate planning strategies. 

Thinking about the what-ifs of the 2025 Greenbook proposals can be a useful exercise for staying one step ahead of changes to the tax code. To review your estate plan and stay prepared for what could be coming, schedule a meeting with our tax and estate planning attorneys. 

When most people think about creating an estate plan, they usually focus on what will happen when they die. They typically do not consider what their wishes would be if they were alive but unable to manage their own affairs (in other words, if they are alive but incapacitated). In many cases, failing to plan for incapacity can result in families having to seek court involvement to manage a loved one’s affairs. It does not matter who you are, how old you are, or how much you have—having a proper plan in place to address your incapacity or death is necessary for everyone. Recently, comedian and late night talk show host Jay Leno had to seek court involvement to handle his and his wife’s estate planning needs due to his wife’s incapacity.

What Is a Conservator?

A conservator is a court-appointed person who manages the financial affairs for a person who is unable to manage their affairs themselves (also known as the ward). The conservator is responsible for managing the ward’s money and property and any other financial or legal matters that may arise. They are also required to periodically file information with the court to prove that they are abiding by their duties. To have a conservator appointed, an interested person must petition the court, attend a hearing, and be appointed by a judge. This can be very time-consuming, and there are court and attorney costs that must be paid along the way.

Jay Leno’s Petition to the Court

In January 2024, Jay Leno petitioned the court to be appointed as the conservator of the estate of his wife, Mavis Leno, so that he could have an estate plan prepared on her behalf and for her benefit. Unfortunately, Mrs. Leno has been diagnosed with dementia and has impaired memory. Her impairment has made it impossible for her to create her own estate plan or participate in the couple’s joint planning. According to court documents, Mr. Leno wanted to set up a living trust and other estate planning documents to ensure that his wife would have “managed assets sufficient to provide for her care” if he were to die before her. Right now, Mr. Leno is managing the couple’s finances, but he wanted to prepare for a time when he is no longer able to do so.

On April 9, 2024, the court granted Mr. Leno’s petition. According to the court documents, the judge determined that a conservatorship was necessary and that Mr. Leno was “suitable and qualified” to be appointed as such. During the proceedings, the judge found “clear and convincing evidence that a Conservatorship of the Estate is necessary and appropriate.”

Although there was a favorable outcome in this particular case, it still took several months for Mr. Leno to be appointed by the court. In addition to the initial filings and court appearances, there will likely be ongoing court filing requirements to ensure that Mrs. Leno’s money is being managed appropriately. Had they prepared an estate plan ahead of time, much of this time and hassle would likely have been avoided.

Important Takeaways

While many people may dismiss the Lenos’ experience as something that applies only to the rich and famous, the truth is that you could find yourself in the same situation (although with a smaller amount of money and property at play) if you are not careful. Let’s use this opportunity to learn from their mistakes.

• Spouses are not automatically able to step in for each other in times of incapacity or death. Many people are under the impression that because they are married, their spouse can automatically step in for them upon their incapacity or death without any estate planning tools in place or the need for court involvement. The Lenos’ story demonstrates that this is simply not the case. Once a person turns 18, no one (not even a spouse) can automatically step in to manage their finances or healthcare decisions without either the person’s prior consent (usually in the form of estate planning documents) or court involvement.
• Proper estate planning documents could have prevented this. If Mrs. Leno had had a proper financial power of attorney granting her husband the authority to create an estate plan for her, it is quite possible that Mr. Leno would not have had to petition the court to become her conservator, as he would have already possessed the authority through the financial power of attorney. Also, if she had had a financial power of attorney, she likely would have also had a last will and testament or revocable living trust created at the same time, which is what Mr. Leno was ultimately seeking to accomplish. Preparing these documents before her incapacity would have allowed Mrs. Leno to specify her wishes while she was able to communicate them.
• While the intent is to avoid probate court, sometimes it is necessary. When an adult person does not have the ability to manage their own affairs, someone has to be able to step in on their behalf. But what happens if the person has not created an estate plan? State law will usually specify a process for ensuring that someone is appointed to manage an incapacitated person’s affairs and that they are properly cared for. However, there are usually delays and additional costs associated with going through this court process as compared with using a financial power of attorney.
• Having a plan in place is better than relying on a state’s default rules. While the Lenos’ situation seems to have been resolved positively, conflict can arise when relying on a state’s rules. Multiple family members may want to manage their loved one’s affairs, and any disagreements may need to be refereed by a judge. This infighting will become a matter of public record and can also delay the entire process. Also, if you do not have a close relationship with your family, relying on the state’s laws relating to priority of appointment may give an estranged family member the authority to make decisions on your behalf even if that would not be the person you would have chosen. It is better to proactively create an estate plan so that you can be in control of appointing the person you want to act on your behalf.

We can help you and your loved ones regardless of where you find yourself in the estate planning process. Whether you are looking to proactively plan to ensure that your wishes are carried out during all phases of your life, or if you need assistance with a loved one who can no longer manage their own affairs, give us a call.

Under the Corporate Transparency Act (CTA), which took effect January 1, 2024, many business entities including small limited liability companies (LLCs) and partnerships are required to file reports with the Treasury Department’s Financial Crime Enforcement Network (FinCEN). In these filings, applicable businesses must disclose important information about their entity. However, recent developments have called into question the constitutionality of these requirements.

What Is the Corporate Transparency Act, and What are the Requirements?

The CTA is a federal law that requires business entities, referred to as reporting companies, to disclose certain information about the company and its owners to FinCEN. Under the CTA, a reporting company is defined as a corporation, LLC, or similar entity that is (i) created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe, or (ii) formed under the laws of a foreign country and registered to do business in the United States. The following information about reporting companies in the United States must be included in the report:

• the company’s full legal name and any trade name or doing business as (d/b/a) name
• street address of the principal place of business
• jurisdiction where the business was formed
• tax identification number

Additionally, the reporting company must provide the following information to FinCEN about its beneficial owners, defined as persons who hold significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company:

• full legal name 
• date of birth
• current residential or business address
• unique identification number from an acceptable identification document or FinCEN identifier

For reporting companies created on or after January 1, 2024, the same information must be provided about the company applicant, the person that files the creation documents for the reporting entity. 

Some Current Litigation

National Small Business United v. Yellen

On Friday, March 1, 2024, in National Small Business United v. Yellen, Judge Liles C. Burke of the United States District Court for the Northern District of Alabama ruled via memorandum opinion that the CTA is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to FinCEN. The National Small Business Association (NSBA), an Ohio nonprofit organization representing more than 65,000 businesses from all 50 states, and Issac Winkles, an NSBA member and owner of two small businesses, had brought suit against the US Department of the Treasury and Treasury Secretary Janet Yellen, alleging that the mandatory disclosure requirements imposed by the CTA exceeded Congress’s authority under Article I of the US Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments. The US Department of Justice has since filed an appeal of the district court’s decision with the US Court of Appeals for the Eleventh Circuit asserting that the CTA is constitutional.

Boyle v. Yellen

On March 15, 2024, William Boyle initiated a lawsuit in the US District Court for the District of Maine alleging that the CTA is unconstitutional. The lawsuit states that Congress exceeded its authority under Article 1 of the Constitution and encroached upon the states’ respective sovereignties in violation of the Ninth and Tenth Amendments and constitutional principles of federalism and retained state sovereignty.

Small Business Association of Michigan v. Yellen

On March 26, 2024, the Small Business Association of Michigan, Chaldean American Chamber of Commerce, Steward Media Group, LLC, Power Connections Co, LLC, Derek Dickow, Semper Real Estate Advisors, LLC, and Timothy A. Eisenbraun, filed a complaint for declaratory judgment and injunctive relief alleging that Congress exceeded its constitutional authority, the CTA amounts to an unreasonable search and seizure, and the CTA is a violation of due process. In response, the US Department of Justice has filed a brief asserting the constitutionality of the CTA.

Where Do We Go from Here?

With one case decided, two awaiting further proceedings, and other lawsuits being filed, there will be little change for most business owners. The decision in Alabama only applies to the named plaintiffs; anyone who was not part of that case is still required to comply with CTA requirements. We understand that the landscape is constantly evolving, and we are here to keep you updated so you can comply with all applicable laws. If you have questions about the next steps, give us a call.

Wrongful death lawsuits and probate proceedings are both civil legal matters that occur after somebody has died. 

When the death of a loved one is caused by another individual or entity, it can lead to the filing of a wrongful death lawsuit and, ultimately, the awarding of compensation to surviving family members. Probate is a court proceeding that deals with administering a decedent’s estate, inventorying their accounts and property, paying off creditors, and making distributions to heirs or beneficiaries.  

While probate proceedings are fairly common when a person dies, very few deaths give rise to a wrongful death claim. However, wrongful death and probate can intersect if somebody dies due to another’s misconduct. 

State laws vary on who has the legal authority to file a wrongful death case. There is also considerable state variation on how the proceeds of a wrongful death claim are distributed to survivors.

What Is a Wrongful Death? 

A wrongful death, as the term implies, is a death that results from the “wrongful” action of another, such as negligence, carelessness, recklessness, or intentional conduct. 

Both individuals and entities, such as businesses and governments, can commit a wrongful action that leads to death. For example:

• A person drives drunk and kills somebody else in a car accident
• A doctor negligently fails to diagnose or treat a patient’s medical condition that proves to be fatal 
• A company manufactures a toxic chemical that causes a deadly illness
• One person assaults another and kills them

Wrongful death is a matter of civil law, although in some cases—perhaps most famously the O.J. Simpson case—a person’s death can lead to both criminal and civil charges. 

Who Can File a Wrongful Death Lawsuit? 

A wrongful death lawsuit can award damages to pay for the decedent’s medical bills, pain and suffering, and funeral expenses. It can also provide money to survivors for their economic and emotional injuries, such as loss of financial support, household services, and love and companionship. 

The question of who can file a wrongful death lawsuit comes down to state law. Generally, states allow one of the following to sue: 

• Survivors of the decedent designated by state law, such as a surviving spouse or romantic partner, children, parents, or siblings
• The decedent’s estate, via their personal representative (referred to in some states as an executor)

In states where survivors are allowed to sue for wrongful death, the right to file suit is typically prioritized based on the closeness of the relationship, with a surviving spouse and children given priority. 

Some states allow groups of survivors to sue. Others give priority to family members and give them a limited amount of time to file a lawsuit, and, if they fail to do so, additional relatives and even unmarried domestic partners can then sue. 

There are also certain states where only the decedent’s probate estate can file a wrongful death lawsuit. In these states, the personal representative of the probate estate (for example, a family member or a lawyer) is the only party who has the legal authority to act on behalf of the estate and file the lawsuit. The personal representative of the probate estate might be someone who was named in the decedent’s will or appointed by a judge according to state law if the decedent died without a will.

Wrongful Death, Estates, and Probate

Probate is not always necessary when someone dies; there are instances when the value of the decedent’s money and property is small enough to avoid probate, or the family uses estate planning tools such as living trusts to avoid it.

Wrongful death claims, as previously mentioned, are relatively uncommon. In 2022, there were just over 227,000 preventable deaths caused by injuries nationwide and not all of these were wrongful deaths.

Even if a person has no accounts or property or if their estate is otherwise eligible to skip probate, numerous factors can make opening an estate and filing for probate necessary to resolve a wrongful death claim. 

Here are some areas where a wrongful death claim overlaps with opening an estate and engaging the probate court: 

• In states where only the personal representative of the estate is authorized to bring a wrongful death lawsuit, the local probate court must appoint a personal representative to file the wrongful death claim. This step is required whether or not the decedent left a will naming a personal representative, regardless of whether they are suing on behalf of the estate or on behalf of the decedent’s survivors. 
• The decedent could have incurred medical debt between the time of their injury and their death. Portions of the wrongful death settlement could also be taxable. These debts might need to pass through the estate to pay off creditors, which would require petitioning the probate court to open an estate for the wrongful death case.
• Some state courts award wrongful death damages to the estate, which then distributes payments to survivors rather than awarding damages directly to survivors. 
• In some jurisdictions and situations, wrongful death damages are subject to probate because the court must approve the division of accounts and property before they are distributed to beneficiaries. This can occur with or without a will. 
• There may be people eligible for wrongful death damages who were not named as beneficiaries in the decedent’s will. The probate court may need to approve payments to these individuals. 
• If probate and a wrongful death claim are ongoing at the same time, the estate cannot close until the lawsuit is resolved because the proceeds will likely be considered part of the deceased person’s estate. 
• The wrongful death claim could be settled out of court before a lawsuit is filed, but to receive the settlement money from the defendant, the defendant must first be released from liability—something that only the personal representative of the probate estate can do on behalf of the estate.

To summarize, if a wrongful death lawsuit is filed, it is likely to trigger probate and court involvement considerations in one way or another. The specific ways in which wrongful death and probate intersect, however, are largely dependent on state law. 

Who Gets the Money from a Wrongful Death Lawsuit?

Determining who benefits from a wrongful death settlement or jury verdict, like other aspects of a wrongful death lawsuit, comes down to state statute. 

The different ways that states approach the distribution of damages awarded in a wrongful death lawsuit include the following:  

• State intestacy laws: the laws that dictate how a decedent’s money and property are distributed when they die without a will 
• Agreement among surviving family members: using a family settlement agreement, a type of contract that family members put in writing and sign 
• In proportion to the losses suffered by each surviving family member: potentially based on the value of their lost support and services
• According to the terms of the decedent’s will
• At the discretion of the probate court
• Based on the level of dependency of the survivors

As these examples show, there is a high degree of variability among states about wrongful death lawsuit award distributions. States may give significant latitude to family members to decide how the proceeds should be split or strictly adhere to statutory provisions. 

States also vary on the types of damages that can be awarded in a successful wrongful death claim. Most state laws allow economic and noneconomic damages to be recovered, but they may give itemized descriptions of the specific damages that can be awarded to particular survivors and distinguish between damages recoverable by survivors and recoverable by the estate. In some states, each heir must present evidence to the court of their losses to receive a share of the wrongful death damages. 

Talk to a Lawyer About Wrongful Death and Settling an Estate

Closing the book on a loved one’s estate can be procedurally complicated and emotionally difficult no matter the circumstances of their death, but if their passing also involves a wrongful death claim, the situation can become much more emotional and increasingly complex. 

Whether you are a personal representative or family member responsible for filing a wrongful death lawsuit, an heir seeking to claim a portion of a wrongful death payout, or you want to make sure that your estate plan anticipates the possibility of a wrongful death and addresses how to best deal with it, our attorneys can help. 

Contact us to set up a time to talk about the intersection of wrongful death, probate, and estate law.