In a 50-minute presentation based on his 100-plus page outline, Steve R. Akers from Bessemer Trust touched on a myriad of post-death administration challenges. His outline included sections on communication issues, administrative delays and access to funds for beneficiaries to keep their lifestyles in the immediate aftermath of a death. His materials also touched on fights over tangible personal property and conflicts that can arise when estates and trusts are disproportionately divided. Other topics covered included proposed regulations on basis consistency (which still aren’t final), alternate valuation date elections, deductibility of post-death interest expenses under Internal Revenue Code Section 2053, qualified terminable interest property (QTIP) elections and portability considerations, funding pecuniary bequests per Revenue Procedure 64-19, valuation issues, planning opportunities for surviving spouses after QTIP trusts are funded and personal liability for estate taxes.
The Internal Revenue Service issued temporary and proposed regs on basis consistency and reporting requirements in March 2016. Akers noted that the proposed regs state that the final asset valuation for estate tax purposes sets the initial basis but pointed out that routine post-death basis adjustments may still apply. For property subject to non-recourse debt, the basis is gross value of the asset even though the net value is on the estate tax return may be reduced by the amount of the debt. The regulations also distinguish between the basis consistency requirements and the basis reporting requirements. In his outline, Akers identifies several assets and classes of assets that, while not subject to the basis consistency requirement, are still subject to the basis reporting requirements and must therefore be identified and reported on IRS Form 8971 and the requisite Schedule A for each of the beneficiaries entitled to the assets or the class of assets. Akers also noted that if after-discovered or omitted property isn’t reported on a supplemental estate tax return prior to the end of the statute of limitations for the assessment of estate tax, the basis of such property, including cash, will be set at zero.
On alternate valuation for estate tax purposes, Akers noted that election of alternate valuation can only be used if it will reduce the value of the total gross estate and reduce the amount of the federal estate and generation-skipping transfer tax due because of the death. He also noted that if alternate valuation is chosen, assets that are sold or distributed within six months of death will be valued as of the date of the sale or distribution.
The outline and the presentation included a lengthy discussion of the proposed regulations about administrative expense deductions under IRC Section 2053. Among other things, Akers named four general topics related to deductions for claims and administrative expenses under Section 2053. Those topics are: (1) applying present value concepts, (2) deductibility of interest, (3) deductibility of amount paid under a personal guarantee, and (4) curing technical problems of references in existing regulations to a “qualified appraisal” for valuing claims by instead describing requirements for a “written appraisal document.” Akers also noted the 11 factors listed in the proposed regs that may support a finding of deductibility for interest owed on loan obligations incurred by the estate to pay estate taxes. Akers also cited several cases that address the estate tax deductibility of post-death interest.
On elections for QTIP trusts, Akers noted that, among other things, formula QTIP elections are permissible, and assets that are subject to QTIP elections can be distributed to separate QTIP trusts.
Akers closed out his presentation with a discussion of personal liability for estate taxes. He cited the executor’s duty to pay the estate tax and potential for personal liability for the executor if the estate tax isn’t paid. He also noted that certain recipients of non-probate property can be held personally liable if the estate tax applicable to the property they receive isn’t paid. The outline included an overview of transferee liability and a discussion of the Paulson case, which he indicated was the first case to apply personal liability to trustees who are appointed after a death or trust beneficiaries who receive distributions after a death. The appellate court in the Paulson found that trustees and trust beneficiaries can be personally liable for estate taxes. However, the personal liability of successor trustees is capped at “the value of the property at the time that they received or had it as trustees,” and the personal liability of trust beneficiaries “cannot exceed the value of the estate property at the time of decedent’s death, or the value of that property at the time they received it.” U.S. v. Paulson, 131 AFTR 2d 2023-1743 (9th Cir. May 17, 2023), petition for cert. filed (U.S. Oct. 23, 2023) (No. 23-436).