The Heckerling Estate Planning Institute, sponsored by the University of Miami (Coral Gables) School of Law, was held in Orlando, FL, the week of January 12th. This was the 59th consecutive year of the conference, bringing together more than 4,100 attendees, consisting of wealth managers, probate attorneys, accountants, life insurance professionals, trust officers, charitable planned giving officers, financial planners and IRS Estate and Gift Tax Agents. Heckerling is the largest such gathering and has long been regarded as the Platinum Standard for practitioners representing clients throughout the U.S. and abroad. Each session is conducted by a distinguished probate practitioner or law school scholar. Discussed below are some of the current pressing topics of interest to clients served by Carnegie Investment Counsel.
One of the attendees’ most anticipated topics (as well as our clients) was the fate of the Tax Cut and Jobs Act (2017) provisions affecting corporations and individuals enacted in the President’s first term. Currently scheduled to expire at the end of this year, transfer tax (federal estate, gift, and generation-skipping) exemption levels could be reduced by one-half, and both corporate and individual income tax rates could be increased to pre-2017 levels. There also could be potential for an array of adjustments to the standard deduction for those taxpayers who do not itemize, and to specific deductible categories for those who do itemize. Current thinking among those speaking from the podium on this topic is that eventually, most provisions of TCJA 2017 will be renewed; however, with a razor-thin majority in Congress, there will likely be some “horse-trading” in smoke-filled rooms leading up to the end-of-year before we know which specific provisions will survive. Of course, we will continue to keep our fingers on the pulse of Washington, D.C., and will report back to you as unknowns become known.
Since the passage of SECURE 2.0 in late 2022, there have been a number of items spawning confusion surrounding distributions from inherited qualified retirement accounts. Much of the confusion revolved around whether distributions from inherited IRAs were required prior to the end of the 10th year following the year of death of an account owner. Between a two-year Required Minimum Distribution hiatus due to COVID-19 in 2020 and 2021 and the passage of SECURE 2.0 in 2022, many beneficiaries of inherited IRAs were unclear about the need to take any RMDs. The IRS took a benevolent approach on this matter for 2022 through the end of calendar year 2024 and did not apply any penalties for failure to take an RMD on an inherited IRA.
The Final Regulations, issued in July 2024, not only became effective on January 1, 2025, but will also be enforced as of this date. Essentially, when distributions from inherited IRAs must be taken by beneficiaries turns on whether or not the account owner had reached the Required Beginning Date at time of death (April 1st of the year following their “Attained Age”), which is:
For those account owners who had met or will meet their Attained Age before death, beneficiaries will be required to take distributions beginning with the year following the year of death, and they must deplete the account by the end of the 10th year following the year of death unless the beneficiary is an “Eligible Designated Beneficiary” (EDB). An “EDB” is defined as a surviving spouse, minor child under age 21, a chronically ill or disabled individual, or any other individual who is not more than 10 years younger than the account owner.
Should the account owner be under their Attained Age at the time of death, distributions from inherited qualified retirement accounts may be taken by beneficiaries at any time and in any amount but must withdraw the entire account balance by December 31 of the 10th year following the year of death of the account owner, unless the beneficiary is an EDB as defined above.
While there is clarity now on when and under what circumstances distributions must be taken by beneficiaries on inherited qualified retirement accounts, this area remains highly technical in nature. We strongly recommend that clients communicate with their attorneys, accountants and financial advisors when they first learn of their status as a beneficiary of any qualified retirement account.
Heckerling is much more than just probate laws and taxation; the conference is always on the lookout for cutting-edge planning techniques to enhance the number of arrows in the quiver in serving clients. One of the topics covered this year is the evolving concept of “Purpose Trusts.” A typical personal trust has a creator (grantor) and sequence of beneficiaries, usually family relations, with, in most cases, the trust providing support for those beneficiaries for life and culminating in an ultimate distribution to future-born heirs. The trustee(s) of a personal trust are accountable to the trust beneficiaries and must balance and place the interests of the trust beneficiaries ahead of their own.
A Purpose Trust differs in several respects. First, it is classified as a form of Social Philanthropy under a lesser-known Internal Revenue Code Section 501(c)(4). While a Purpose Trust is created by an individual, it is done so with the intention of operating in perpetuity to attain a specific altruistic purpose, through the continuation of a business enterprise without contending with the financial and transfer tax implications associated with business ownership transitions at each generational level. Such an arrangement thought of as a form of “stewardship,” ensures that employees and service providers are fully supported. Purpose Trusts are managed by a “Protector” and “Enforcer” (this can sound somewhat draconian!) to discharge the desires of the Purpose Trust creator in perpetuity. The popularity of Purpose Trusts began to grow several years ago when Yvon Chouinard, founder of Patagonia, an outdoor clothing and sportswear company, established such an arrangement in 2022 to promote the sustainability of the firm’s business practices in addition to the well-being of its employees. It is noteworthy that Chouinard’s family members will not inherit any stock in Patagonia; ownership of the firm passes to a 501(c)(4) organization. To be clear, Purpose Trusts are not a transfer-tax savings device, and the establishment requires careful planning well in advance of an owner’s life expectancy. For entrepreneurs who wish to ensure that their business philosophy, vision, respect for the environment, and affection for employees and vendors who contributed mightily to the long-term success of the enterprise, a Purpose Trust may be an appropriate business succession option.
While too numerous and detailed to cover adequately in this blog, the Heckerling Conference also addressed the following areas:
As trusted wealth managers and financial advisers, we invite clients who may have questions or concerns on any topic discussed in this blog to reach out to us for a preliminary discussion of the particular circumstances.
For informational and educational purposes only. The information is not intended to provide specific advice or recommendations, and the information has been obtained from sources believed to be reliable. Please consult with tax, legal, and financial advisors as laws and interpretations are subject to change. Planning techniques and strategies referenced may not be suitable for everyone as they do not consider personal, financial, or tax considerations specific to your circumstances.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
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