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(12/20/19) - SECURE ACT passes -- enormous changes to the rules governing inherited retirement accounts, and an effective massive "inheritance tax" on the beneficiaries of these accounts, often children of professionals and academics.  Clients whose "savings" are concentrated in retirement accounts should seek immediate financial advice and possibly purchase life insurance, since their heirs may lose nearly half the value of a large account to income taxes. The new law requires accounts inherited after 1/1/2020 in most cases to be distributed in full within ten years of death, whereas prior law allowed payout to be "stretched" over the recipient's lifetime, effectively creating a way to cover the retirement expenses of the beneficiary. Since most beneficiaries would have been younger than the owner, with a life expectancy of 20+ years, this doubles the payout schedule and due to bunching of the distributions, will cause the account payouts to be subject to much higher income taxes. In Connecticut, this could result in a 40% haircut on the account value. (By contrast, the real estate developer's child can inherit property that includes deferred gain, and will get a full step-up in basis on death and no estate tax or income tax to pay, provided the estate is within the exclusion limits, currently over 11 million federally.)  Further problems may arise for trusts designed to protect these accounts.  Trusts pay the highest tax rate of 37% on income over approx. $13,450.  To avoid this high rate of tax, the trust document or the trustee may feel compelled to pay the money out to the beneficiary, preventing the funds from being protected against the beneficiary's creditors.    While these draconian rules may not apply to some special needs trusts, and trusts for minor children get a little more than the 10 years, these exceptions definitely don't cover every situation.  The law is new, so stay tuned for further updates.  Proposed regulations were issued in 2022, but the final regulations may be different.

(2019) Connecticut adopts UNIFORM TRUST CODE with many changes to centuries of trust law -- including some changes that even apply to already existing irrevocable trusts.  To limit financial information that must be disclosed to remainder beneficiaries, to remove the default requirement for annual Trust Reports, to narrow the opportunities for trustees and beneficiaries to collude to change a trust you created after you are dead and gone -- it's essential to consult with an attorney ASAP.  On the plus side, the new law allows beneficiaries and trustees to adapt to changes, to appoint successor trustees without court involvement, allows settlors to create "dynasty" trusts that will go on for 800 years as well as domestic asset protection trusts, allows "directed" trusts so that the job of managing money and deciding on distributions can be divided up and decisions made by non-trustees, and offers clarity (if not comfort) to trustees with respect to the statute of limitations. And if you are a beneficiary, you may have new rights or at least easier ways to enforce them.  If your attorney seems tired and stressed this year (written in 2019, still true in 2022) that's because she is taking multiple continuing education courses, revising all her forms, and agonizing about how to cope with these changes!

(revised 2022):  The Most Regressive Death Tax by Another Name - Connecticut's Probate Fee.  They won't call it a "tax" because they'd have to admit it is a tax that is a real death tax -- it applies to EVERYONE who dies in Connecticut, even someone who dies homeless and penniless.  It's the "probate fee" that is delivered to the probate court where the person resided at death, and which is imposed when the CT estate tax return is due -- six months after death.  The check is even made out to "Treasurer, State of Connecticut."  "But my estate is too small for a CT estate tax -- this won't apply to me, will it?"  Sure it will.  The CT estate tax return for "non-taxable" estates must be filed within six months of death. If it is not filed, INTEREST ACCRUES ON THE TAX THAT WOULD HAVE BEEN ASSESSED WHEN IT WAS TIMELY FILED -- at 0.5% per month.  "But if I avoid probate, I avoid the probate fee, right?"  WRONG.  Imagine joint bank accounts of $50,000, a life insurance policy of $25,000, and a retirement account of $25,000.  Even with no probate, the CT Estate tax return for non-taxable estates must be filed within six months, reporting assets of $100,000 -- and a "fee" of $465 is due, payable within thirty days.  (OK, short extensions are now permitted if you ask and use the right form.)  Suppose nobody files the return, and a year passes.  If my computations are right, the recipients will owe over $30 in interest.  The only exception to the late filing interest:  estates of $40,000 or less (or $500,000 and some passes to a surviving spouse).  That's an exemption for the interest -- not for the death tax, oops, I meant to say, probate fee.  For more details, here's what the Probate Courts have to say about it.  So -- since the only way to "avoid" the probate fee is to avoid dying a Connecticut resident (unless your heirs you break the law), in Connecticut you pay a fee for dying.  As the Beatles joke, "Now my advice for those who die / Declare the pennies on your eyes." Signed, someone who supports the Buffett Rule.  Honestly.  Poor widows, indigent orphans should not have to pay a tax just to DIE.  Explain this to your legislator, I'm tired of explaining it to my clients!  See my article: "When Somebody Dies in Connecticut:  PAPERWORK" if you want to do this o your own.  Please go to change.org and look for the petition "end the widow tax."

And while I am griping.  So why do the widows and orphans still have to pay this miserable probate fee, but the multi-millionaires are paying nothing at all?  My very nice wealthy clients were so embarrassed by the Tax Cuts and Jobs Act which doubled the federal estate tax exemption to $12.06 MILLION per person ($24.12 million if married) they took pains to tell me they were not supporting it.  And the State of CT raised the exemption so that in 2022 it is now 9.1 million!  Don't get me wrong, I don't like paying taxes any more than the next person, but how is this fair, when our country is in debt, our roads and bridges are falling down, and we don't have enough mental health services?  The only good thing that can be said is that now clients will not be doing trusts just to save taxes, but only if the trust is really worthwhile for other reasons.  By the way, bad things (from a tax perspective, not policy) in the Act included raising the "kiddee tax" paid when a minor child has unearned income; getting rid of the tax deduction for alimony; getting rid of the miscellaneous deductions subject to a 2% floor, such as union dues, employment expenses and pass-through deductions from estates; and keeping the high, high taxes paid by trusts and estates.

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