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High Net Worth Family Tax Report, Vol. 16, Issue 1

Welcome back to Loeb & Loeb’s High Net Worth Family Tax Newsletter, 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. 

In this issue, we cover several recent developments in federal and state laws and regulations. Partner Schulyer Carroll reviews recently amended rules issued by the Federal Deposit Insurance Company (FDIC) to help simplify the determination of FDIC coverage limits for trust bank accounts. Senior counsel Jennifer Smith summarizes changes to the required minimum distribution rules for retirement plans and accounts made under SECURE 2.0 Act, passed at the end of 2022. And partner Paul Frimmer discusses recent U.S. Tax Court decisions highlighting the need to comply with “qualified appraisal” rules and other technical tax requirements to successfully claim a charitable income tax deduction for certain charitable donations of property. 

In the new Family Office Corner of our newsletter, featuring insights on topics of interest to our family office clients, partner Giovanni Caruso explains the rules recently adopted by the Securities and Exchange Commission that accelerate the reporting deadline for gifts of public company stock by company insiders. 

Partner Linda N. Deitch and associate Lilian Walden Givens discuss notable legislative developments for California trusts, including the provision of new rights to remainder beneficiaries of California revocable trusts to receive trust information if the settlor becomes incompetent.  

Looking at the information reporting duties applicable to irrevocable trusts, partners Linda N. Deitch, Jordan Klein and Todd I. Steinberg, senior counsel Jennifer M. Smith and associates Caitlin Cline and Lilian Walden Givens summarize the rights of irrevocable trust beneficiaries to request and receive trust information and the ability of trust settlors to modify or waive these requirements under the laws of various jurisdictions. 

Finally, in case you missed it, partner Paul Rohrer and associate Nick Warshaw provide insight into California’s recently enacted political contributions law, SB 1349, and its impact on real estate proceedings in their alert “California Law Restricting Political Contributions to Local Elected Officials Deemed Constitutional—At Least for Now.

In This Issue:

New FDIC Rules Change Coverage For Trust Accounts

In light of recent bank failures, many people are rightfully concerned about the coverage limits of Federal Deposit Insurance Corporation (FDIC) insurance that apply to their bank accounts and want to ensure that their accounts are fully protected. Determining the coverage limit for trust accounts under the current FDIC rules is complicated and depends on many factors. The FDIC recently amended these rules to help simplify and streamline their application. Read more here.

SECURE 2.0 Act Changes to Required Minimum Distribution Rules for Retirement Plans and Accounts

In a follow-up to the SECURE Act of 2019, the enactment of the SECURE 2.0 Act of 2022 made several additional revisions to the required minimum distribution (RMD) rules applicable to retirement plans and accounts. Read more here.

Importance of Qualified Appraisals and Other Compliance Rules for Charitable Income Tax Deductions

For noncash charitable gifts with a value of over $5,000 (other than gifts of publicly traded stock), a key requirement for receiving a charitable income tax deduction is obtaining a “qualified appraisal” by a “qualified appraiser.” Recent cases have highlighted the importance of this requirement and demonstrated that successful claims for charitable income tax deductions necessitate careful adherence to these and other technical tax rules. Read more here.

Family Office Corner: SEC Accelerates Disclosure of Public Stock Gifts by Insiders

The Securities and Exchange Commission (SEC) recently adopted new rules that will require accelerated reporting of gifts of stock of public companies by company insiders. Historically, these transactions could be reported annually, but as of April 1, 2023, reporting is required within two business days of the date the gift is made. Read more here.

Notable Legislative Developments for California Trusts

California has enacted a number of statutory changes to the California Probate Code that impact California trusts, including permitting irrevocable grantor trusts to include discretionary income tax reimbursement powers and providing new rights to remainder beneficiaries of revocable trusts to receive trust information if the settlor becomes incompetent. Read more here.

Irrevocable Trusts and the Rights of Beneficiaries to Information - Who Must Receive What and When?

High net worth individuals frequently create irrevocable trusts during life to benefit their spouses, children, grandchildren or other family members while also managing their access to the trust assets. These trust settlors similarly may want to control the beneficiaries’ access to trust information for various reasons—for example, due to concerns that knowledge of the assets may create conflict among beneficiaries or potentially disincentivize a beneficiary from seeking productive social or educational development. Most states, however, require trustees of irrevocable trusts to provide some form of trust information to the beneficiaries, although the rules vary extensively. For instance, some states mandate that trustees provide beneficiaries with notice of an irrevocable trust’s existence, annual trust reports and disclosure of additional trust information upon request, while other states permit the trust agreement to leave most reporting to beneficiaries solely in the discretion of the trustee. Read more here.

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