Is this the Beginning of Estate Tax Repeal?
President Trump ran on a platform seeking repeal of the estate tax. On January 24, 2017, Congresswoman Kristin Noem (Republican-South Dakota) along with congressman Sanford Bishop (Democrat-Georgia) and others, introduced H.R. 631 in the House, which if enacted, would repeal the estate tax. HR 631 provides special rules for Qualified Domestic Trusts ("QDOTs"). A QDOT is a type of "Marital Trust" substitute for surviving spouses who are not U.S. Citizens to defer any estate tax until certain principal distributions are made to the surviving spouse during a lifetime or at his or her death.
On January 24, 2017, Senator John Thune (Republican-South Dakota) introduced similar legislation in the Senate. Both Bills retain the existing gift tax and continue to any index the current gift tax exemption amount ($5,490,000, in 2017). The maximum gift tax rate would be reduced to 35%.
Are NINGs, DINGs and WINGs at risk?
Note also that legislation introduced in the Senate proposes a new Section 2511(c) to be added to the Internal Revenue Code ("IRC"). Proposed Section 2511(c) would provide this: "Treatment of Certain Transfers in Trust-Notwithstanding any other provision of this section and except as provide in regulations, a transfer in trust shall be treated as a taxable gift under Section 2503, unless the trust is treated as wholly owned by the donor or the donor's spouse" under the Subchapter J rules.
If enacted, this new Section 2511(c) would in many cases eliminate the effectiveness of Incomplete Non-Grantor Trusts ("INGs"). INGs are affectionately known by such names as NINGs, when established in Nevada; DINGs, when established in Delaware; and WINGs, when established in Wyoming. When structured perfectly, a number of INGs have been "blessed" by the IRS in recent Private Letter Rulings. INGs have been used by individuals residing in states with high state income taxes to hold income producing assets and highly appreciated assets in trust in a state with no state income taxes to obtain state income tax savings. NINGs may be subject to greater scrutiny by the California Franchise Tax Board.
IRS Suspends Guidance:
On February 13, 2017, the IRS announced that "for a while" the IRS will not release new formal guidance including Revenue Rulings and Revenue Procedures. The IRS will, however, release private letter rulings, Chief Counsel Memoranda and routine guidance such as interest rate updates and mileage allowances. This is apparently in response to President Trump's "Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs."
Interesting Case That We Hope We Don't Need:
Estate of Hake v. U.S., No. 1:15-cv-01382, US District Court, MD PA (February 10, 2017).
Good faith reliance on Attorney's advice was a reasonable cause to abate the late filing of an estate tax return. Attorney incorrectly indicated that an extension was available beyond the maximum six months available. The Hake court distinguished that case from the Supreme Court ruling in Boyle, which held that delegating duty to file to a third party will not protect the executor from the third party's negligence. United States v. Boyle, 469 U.S. 241, 245 (1985). In Hake, the executer relied on the attorney's advice but retained the responsibility for filing. This distinction was enough for the Hake court to abate the late filing penalty for a reasonable cause.