New 2021 Upcoming Changes To Estate Planning and Probate by Hammerle Finley Law Firm

I usually do not write about pending legislation because the language in bills can change at lightening speed and it is difficult to summarize a bill without partisan spin.

This year is different. The proposed changes are so drastic and impactful on estate planning and probate that you need to know what is out there. The top 4 laws to watch are the federal estate and gift tax exemption, portability, stepped-up basis and the Rule Against Perpetuities.

As with any proposed legislation, you need to look past the initial press release and focus on the substance and impact.

What Is The Sensible Taxation and Equity Promotion (STEP) Act?

Let us begin with the U.S. Congress, which is off to a roaring start on spending and tax legislation.

Right out of the gate is the proposed legislation named the Sensible Taxation and Equity Promotion (STEP) Act, which is sponsored by Senators Chris Van Hollen, Cory Booker, Bernie Sanders, Sheldon Whitehouse and Elizabeth Warren. This beauty would tax unrealized capital gains on your inheritance. It tips in after the first $1 million in “unrealized capital gains” and also gives an exemption for up to $500,000 on the residence. It has some special rules for trusts that are geared to get around common tax-planning techniques, so that those moneys get taxed, too. It also eliminates carry-over basis for gifts except for spouses and charities.

Not to be an alarmist, but this would be a killer tax on inheritances, trusts and gifts. It would exponentially increase the burden that executors , trustees and just regular folks will face to gather the basis information, obtain appraisals and file the required tax returns. It is difficult enough for someone to keep their own records – can you imagine what an executor or trustee would have to go through to get purchase documents for assets purchased by the decedent decades ago?

If you are interested, then read through the STEP Act and do your research.  With all of other the proposed legislation being filed, this one has the risk of passing without much publicity.

Extension Of The Texas’ Rule Against Perpetuities

On the state side, Rep. Eddie Lucio, III has filed a bill to extend the Texas’ Rule Against Perpetuities from 21 years to 300 years. To explain this, we will need to get a bit into the weeds. The Rule Against Perpetuities requires that trusts cannot be made for perpetuity – that have to terminate within a relatively short period of time. It was a law that was in place in almost every state.

Most states, but not Texas, have either repealed the Rule Against Perpetuities or extended the relevant time period.

Can You Have A Dynasty Trust Within Texas?

Texas, however, has been reluctant to make that change. As a result, you cannot create a true dynasty trust under Texas law. If you want to set aside money for use for future generations, you have to form your trust under another state’s law. That moves the management of the trust, and the money, out of Texas, and puts Texas at a disadvantage for long-term estate planning.

Under the pending bill, Texas would fall into the category of states that keep RAP but extend the time period.

It is not a merely academic exercise. One study found that states with no RAP statue increased their average reported trust assets by $6 billion. In revenue numbers, that would mean an additional $60 million in revenues from trust management fees would stay in Texas.

Stay alert and chime in to the legislators if you want to have a voice in the coming changes.

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Virginia Hammerle is an attorney with Hammerle Finley Law Firm whose practice includes probate law, estate planning and contested litigation. To receive her newsletter contact her at