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High Net Worth Family Tax Report, Vol. 15, Issue 2

Welcome to Loeb & Loeb’s High Net Worth Family Tax Report, bringing you in-depth articles highlighting important topics and providing practical insights for high net worth individuals, with a focus on trusts and estates, tax, family offices and tax-exempt organizations. 

With 2023 fast approaching, our articles on 2022 year-end planning reminders and 2023 inflation adjustments summarize action items that individuals may want to consider as part of their tax planning for the rest of this year and into the next.

Senior counsel Christina Hammervold outlines the beneficial ownership information that many privately held entities will be required to report to the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) under recently issued final regulations, which take effect on January 1, 2024. In our article on private placement life insurance, partners Mary Ann Mancini and Todd Steinberg and senior counsel Jennifer Smith provide an overview of the requirements, financial sophistication and risk tolerance needed for planning with this complex life insurance product. 

Associate Caitlin Cline discusses the benefits and considerations in relying on portability to transfer unused federal estate tax exemption to a surviving spouse in light of the Internal Revenue Service’s extension of time to make the portability election. And for non-New Yorkers owning or considering a New York vacation home, senior counsel Shu-Ping Shen reviews the taxpayer-friendly ruling declaring that a vacation home in New York will not automatically be considered a permanent place of abode for purposes of New York’s income tax residency rules.

In this issue, we’ve also added a new section highlighting issues impacting family offices. In our first article, Bankruptcy partner Daniel B. Besikof and associate Noah Weingarten, and Trusts & Estates partner Paul Frimmer discuss the effect of recent crypto exchange bankruptcies on family offices and other high net worth investors, as well as trust and estate planning considerations to keep in mind when investing in crypto assets.

Finally, in case you missed it, partner Gabrielle Vidal, chair of Loeb’s Guardianship practice, explains guardianship in California and how the Loeb team can help families navigate the complex and often emotionally charged process, in the most recent episode of our In the Know series, “Guardianships in California.”

In This Issue 

2022 Year-End Planning Reminders

The results of the recent mid-term elections mean we are unlikely to see significant tax changes in the near future, which should permit year-end planning with a relatively high degree of confidence. Read more here.

2023 Inflation Adjustments for Personal Tax Planning

A number of provisions of the Internal Revenue Code provide for annual adjustments of dollar amounts based on certain inflation criteria. The IRS has announced the adjustments for 2023, including for gift, estate and generation-skipping transfer taxes and income taxes. Read more here.

FinCEN Issues Final Rules Requiring Beneficial Ownership Reporting by Privately Held LLCs and Other Entities Effective January 1, 2024

Many privately held entities will be required under new federal regulations to disclose their beneficial ownership on an ongoing basis beginning January 1, 2024. The regulations are aimed at curbing money-laundering activities but are broad enough to cover many entities created by individuals as part of their personal planning, including LLCs and family partnerships formed to hold real estate, pool investments or facilitate estate planning transactions. Trusts are not specifically covered, but information about a trust’s beneficial owners may be reportable if the trust directly or indirectly owns an interest in a covered entity. Read more here.

Family Office Feature: Bankruptcy and Estate Planning Considerations for Crypto Assets

The market for crypto assets has recently experienced significant tumult as evidenced by the bankruptcy filings of several significant crypto players. These bankruptcy cases give rise to numerous issues for investors holding crypto assets, which can be mitigated with proper diligence and planning. In addition, there are several estate planning and trust-specific considerations that should be addressed when holding crypto assets (or determining whether to invest in crypto assets). Read more here.

Private Placement Life Insurance: An Overview

Private placement life insurance (PPLI) is a sophisticated life insurance product that offers death benefit protection while also providing access to a variety of registered and non-registered investments that are accessible solely within the life insurance policy structure. Interest in PPLI has risen recently because its unique features make it attractive during periods of increased tax uncertainty and market volatility. Those interested in planning with PPLI, however, should be aware that there are substantial financial thresholds, investment profiles and liquidity requirements that must be met. Read more here.

IRS Extends Deadline for Estates to Elect Portability of Tax Exemption

Thanks to the Internal Revenue Service’s release of Rev. Proc. 2022-32 over the summer, married couples who are not otherwise required to file an estate tax return at the death of the first spouse now have substantially more time to make a portability election, permitting the transfer of the deceased spouse’s unused federal estate tax exemption to the surviving spouse. Read more here.

Vacation Home Not a Permanent Place of Abode for New York’s Statutory Residence Rule 

If you do not live in New York but have been considering a vacation home in the Empire State, you stand to benefit from the opinion in Obus v. New York State Tax Appeals Tribunal. Over the summer, a unanimous panel of justices of the Appellate Division of the New York Supreme Court delivered a taxpayer friendly ruling declaring that a vacation home in New York is not automatically deemed a “permanent place of abode” for purposes of New York’s income tax residency rules and that the facts and circumstances surrounding the vacation home’s use must be analyzed when applying New York’s statutory resident test. Read more here.

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