The past month included important tax law developments that will significantly affect certain individuals. Some of these tax law changes included: dramatic changes to retirement plan payouts, final regulations confirming no estate tax clawback, and a ruling confirming trustee’s severance and spouse’s disclaimer of interest in marital trust.
- Final regulations confirm no estate tax clawback—Treasury published final regulations (final regs) under Internal Revenue Code Section 2010 (T.D. 9884) on Nov. 26, 2019. They confirm that taxpayers who make gifts using the increased gift and estate tax exemption that’s in effect until 2025 (or die before it expires) won’t be adversely affected if the exclusion amount decreases in 2026, as is expected under current law.
- A new law, the Secure Act, dramatically changes the rules determining the schedule for required withdrawals from retirement plans. Under prior law, taxpayers could leave their retirement plans to family members and certain trusts that qualified as “designated beneficiaries”, which allowed those individuals and trusts to withdraw the required minimum distribution over a time period based on the individual or trust beneficiary’s life expectancy. The new law changes the payout period so that only five categories of “eligible designated beneficiaries” qualify for this stretch payout.
- Ruling confirms trustee’s severance and spouse’s disclaimer of interest in marital trust—In Private Letter Ruling 201946009 (Nov. 15, 2019), the Internal Revenue Service approved several transactions relating to a marital trust. The decedent’s surviving spouse was the beneficiary of a marital share under the decedent’s revocable trust. The trustee planned to sever the marital share into a GST exempt share and a GST non-exempt share. Then, the surviving spouse proposed to make a non-qualified disclaimer of her entire interest in the GST exempt share. This ruling illustrates an estate-planning strategy for those clients who wish to make taxable gifts of property held in QTIP trusts for their benefit, to take advantage of the increased unified credit.