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Annual Estate Planning Update

With 2019 now behind us, it’s time to take a look at what significant changes happened in the world of estate planning and consider whether any of those changes affect your own Utah estate plan. Please bear in mind that this is only a brief overview of a few of the changes and is not intended to be comprehensive in any way or specifically applicable to any particular set of facts.

The SECURE Act (Federal)
Effective date: January 1, 2020
Find out more if: You have a trust that is designated as a primary or contingent beneficiary of a retirement account.

The Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) is widely considered the most significant legislation affecting retirement accounts in decades. While there are many changes resulting from the Act, the biggest change impacting estate planning is that many non-spouse beneficiaries can no longer “stretch” retirement account distributions past 10 years after the death of the account owner, with exceptions for certain types of beneficiaries (such as minor, disabled, or chronically ill beneficiaries, etc.).

For those who have named their trust as a primary or contingent beneficiary of a retirement account, the new 10 year rule could have major ramifications on your beneficiaries from a tax or asset protection perspective. For instance, if you included distribution limitations in your trust to give your beneficiaries asset protection, your trust may need to be amended to ensure that it will now hold the funds distributed from the retirement account when the 10 year point hits after your death. Previously, it was more common to direct the trustee to immediately deliver all distributions from the retirement account (known as a “conduit” trust) because doing so reduced the likelihood of triggering other tax consequences. However, that was when the only thing being distributed from the retirement account was the relatively small “required minimum distributions.” Under the SECURE Act, the entire amount must be distributed within 10 years, so a conduit trust would eliminate the asset protection for the funds received from the retirement account. This distribution may also result in a large amount of tax being owed by the beneficiaries. In some cases, it may be better for the funds to be distributed because the beneficiaries will pay at a lower tax rate than the trust, even with the retirement funds.

Ultimately, whether a change to your documents is needed depends on your planning objectives, but if you are not sure, it is worth contacting your estate planning attorney to discuss how the new law applies to your situation. Also, there are a number of other significant changes under the Act that may affect your retirement planning, so it would be wise to meet with your financial advisor as well to discuss the impact of this Act on your situation.

The Uniform Directed Trust Act (State)
Effective date: May 4, 2019
Find out more if: You have a trust that includes provisions for a trust protector (active or springing).

The passage of the Uniform Directed Trust Act (UDTA) in Utah mostly brought clarification regarding definitions, powers, limitations, duties, etc., relating to the role of a trust protector. A trust protector, or “trust director,” is a person or entity that is given special power to take action or make changes to an otherwise irrevocable trust, without adversely affecting the asset protection features of the trust.

Many Utah estate planning attorneys who include trust protector provisions when drafting irrevocable trusts for asset protection also include provisions clarifying that the trust protector is not a “fiduciary.” Whether a trust protector should be considered a fiduciary regardless of the trust terms has been a matter of debate for many years. The UDTA resolves this debate by establishing that a trust protector is a fiduciary. This change matters because a trust protector that is considered a fiduciary may be liable to the beneficiaries of a trust for mistakes or negligence. For anyone with a trust that includes trust protector provisions, you may want to contact your estate planning attorney to consider the pros and cons of adding a trust protector exculpation clause to the terms of your trust.

2020 Gift Tax Exclusion Amount

At the federal level, the gift tax exclusion amount for 2020 is $15,000. Note that this is an annual amount. This means you can give up to $15,000 to any number of recipients within one year without triggering the requirement to file a gift tax return. At the state level, Utah does not have a gift tax.

If you have any questions about how to apply the gift tax exclusion to your own circumstances, please consult with your tax advisor.

2020 Estate Tax Exclusion Amount

The federal exclusion amount for estate tax (a.k.a., “death” tax) in 2020 is $11,580,000 per individual, or $23,160,000 per married couple. In other words, if you die in 2020 and your total estate is less than the basic exclusion amount, then you will not owe any federal estate tax (assuming you have not already reduced your lifetime exclusion by gifting more than the annual exclusion amount). At the state level, Utah does not have an estate tax.

If you have any questions about how to apply the estate tax exclusion to your own circumstances, please consult with your tax advisor.

General Reminder

As a reminder, it is a good idea to consider whether any recent life changes may impact your estate planning decisions. If you decide to make any changes, do not write on your documents. Contact your estate planning attorney for assistance.

PLEASE NOTE: The information contained in this article is a highly simplified explanation of complex laws that involve a significant amount of detail which cannot be adequately described in a brief message. Moreover, the impact of such laws on any particular individual or estate may vary from one case to another.

If there is any question about how the above described information applies to your circumstances, please contact an experienced attorney or tax professional.

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Hadfield Law Firm | Preserving your legacy - Building your trust | Lehi, UT
5 out of 5 stars My husband and I went in to meet Matt after being recommended by another attorney. We went in not knowing much about estate planning. He taught us so much, he’s very patient and caring and willing to answer endless questions and to explain things we knew nothing about. Our experience with Matt made us feel prepared and reassured that he will continue to be there for us when we need help. We also felt our purchase was a great deal and he offered different payment options. And again he could have tried to upsell us and get us to spend more money for “important” reasons and never tried that once. I would absolutely hire Matt again and I’m so grateful we met him and got to achieve our goals with an honest and helpful person.
Hadfield Law Firm | Preserving your legacy - Building your trust | Lehi, UT
5 out of 5 stars Professional in every way!
Hadfield Law Firm | Preserving your legacy - Building your trust | Lehi, UT
5 out of 5 stars I worked with Matt in 2015 to help me understand and administer my father’s trust. I needed reliable and honest expertise in Arizona since I reside in a neighboring state. Matt’s experience and guidance was instrumental in helping me understand and execute the trust. He assisted me every step of the way, explaining and re-explaining (when necessary), administering paperwork, and providing references to contractors and service providers so that I could complete tasks quickly. I am grateful for his counsel during my time of need. I would fully recommend Matt and his team for anyone needing estate or trust assistance.
Hadfield Law Firm | Preserving your legacy - Building your trust | Lehi, UT
5 out of 5 stars Creating a Living Trust is a difficult task and can be very challenging. I had the pleasure of working with Matt who not only took the time to explain everything, but also explained various options in an effort to accomplish what I needed. He is a great communicator, explains things well, and listens to your needs. He's very professional with a warm personality, maintains his commitments and is very knowledgeable in his field. His honesty and desire to assist provided me comfort and made me feel very satisfied with the overall outcome. I highly recommend Matt for any estate planning you might be considering. His qualifications and performance are truly excellent.