ONLINE ESTATE PLANNING AND E-WILLS

by Melissa Miele Bracuti

The Uniform Electronic Wills Act (the “E-Wills Act”) was introduced and, finally, approved by the National Conference of Commissioners on Uniform State Laws also known as the Uniform Law Commission (“ULC”) in July of 2019.  The E-Wills Act provides that a Last Will and Testament, a document traditionally printed and executed on paper, can now be created, signed, witnessed and notarized electronically.  The ULC has worked, for over a century, to propose laws in an effort to simplify life for people who live, work, or travel in multiple states and to facilitate interstate commerce.

For example, the 1999 Uniform Electronic Transactions Act, adopted in all but three states, permits electronic signatures in commercial and contract matters.  However, the Uniform Electronic Transactions Act contains an exception for Wills which cannot be electronically signed. The execution requirements of Wills are normally set by state statutes to ensure validity of a Will.  The long-standing tradition of executing paper Wills is now changing as people are increasing using technology in more and more aspects of their lives.

The ULC has provided through the E-Wills Act that a testator’s electronic signature or even a “mark,” using a stylus or typed signature, must be witnessed contemporaneously and/or notarized contemporaneously with all physically present.  However, states that adopt the E-Wills Act will have the option to include language that allows remote witnessing of a Will and remote notarization.  The E-Wills Act allows a testator to execute his or her “electronic will” with witnesses who are in the “electronic presence” of the testator and allows probate courts to give such a Will legal effect.  In addition, notaries can be permitted to notarize E-Wills remotely to make a Will self-proving.

Hopefully, the E-Wills Act and online estate planning will not increase fraud and coercion with respect to Will creation and execution.  While New Jersey has not yet adopted the E-Wills Act, the issue of electronic Wills executed under the law of another state is one that New Jersey residents, businesses and Courts are soon to face.

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Dying with Dignity in New Jersey: New Jersey’s Aid in Dying for the Terminally Ill Act

by Melissa Miele Bracuti

New Jersey residents should be aware that on August 1, 2019, New Jersey’s Aid in Dying for the Terminally Ill Act went into effect.  The Aid in Dying for the Terminally Ill Act permits qualified terminally ill patients to self-administer medication to end their life in a humane and dignified manner. Both patients and physicians are protected by several safeguards built into the recently enacted New Jersey statute.

The patient must be a New Jersey resident who is at least 18 years of age and can document his or her residency with a driver’s license or identification card issued by the New Jersey Motor Vehicle Commission; a New Jersey resident gross income tax return filed for the most recent year; or other government record that demonstrates residency. The patient must be able to communicate health care decisions and be capable of making informed decisions. The patient’s attending physician and consulting physician will make the determination regarding a patient’s mental capacity.  Finally, the patient must be terminally ill, as defined in the statute. If a patient is in the terminal stage of an irreversibly fatal illness, disease, or condition with a prognosis, based upon reasonable medical certainty, of a life expectancy of six months or less, he or she will be considered “terminally ill” under the statute.

Some of the requirements for the attending physician include: (i) examining the patient and confirming that the patient is terminally ill; (ii) informing the patient of the feasible alternatives to taking the life-ending medication, including, but not limited to: concurrent or additional treatment opportunities, palliative care, comfort care, hospice care and pain control; (iii) referring the patient to a consulting physician for medical confirmation of the diagnosis and prognosis and a determination that the patient is capable of decision-making and is acting voluntarily; (iv) referring the patient to counseling with a mental health care professional; and (v) recommending the patient participate in consultation regarding the alternatives to self-administering the life-ending medication.

Prior to providing a prescription for the medication, the physician is required to recommend that the patient notify their next of kin. Whether the patient decides to withhold notice to their next of kin is left entirely up to the patient. The patient must make two oral requests and one valid written request, in the written form set forth in the statute, to their attending physician to receive a prescription for the life-ending medication.

The State of New Jersey is now the 8th state in the United States to enact a compassionate death with dignity statute. Presently, each of California, Colorado, District of Columbia, Hawaii, New Jersey, Maine (will be effective in September 2019), Oregon, Vermont, and Washington have death with dignity statutes. The State of Montana relies on case law to permit physician-assisted deaths.

Should you wish to receive additional information, or if you have any questions relating to this topic, we invite you to contact our firm’s Private Clients Services and/or Health Care Practice Groups for further discussion.

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Gift Tax Update – Taxable Gifts and the I.R.S. Anti-Clawback Regulation

by Melissa Miele Bracuti

For 2019, for U.S. citizens, the Federal estate and gift tax basic exclusion amount is $11.4 Million per individual and the Federal gift tax annual exclusion amount is $15,000 per donee, per year.  In 2019, an individual can pass up to $11.4 Million estate and gift tax free; for married couples, the figure is doubled.

Making gifts in excess of the $15,000 annual exclusion amount will chip away at the maximum amount that an individual can give away gift tax-free during life.  If an individual (a “donor”) gifts $15,000 to each of ten donees in 2019 for a total of “taxable” gifts in the amount of $150,000, there will be no gift tax due, and there is no decrease in the donor’s $11.4 Million available estate and gift tax basic exclusion amount. In contrast, if a donor gifts $150,000 to a single donee in 2019, only $15,000 of the gift would be exempt from gift tax, and the donor must file a gift tax return showing an excess gift of $135,000.  The donor will not have any tax due; however, the $11.4 million of available exclusion amount will be reduced by the excess gift of $135,000. Thus, the larger the gifts, the quicker a donor will use up his or her $11.4 Million exclusion amount. Given the sizable exclusion amount in 2019, most people would never come close to using the entire exclusion amount.

The Tax Cuts and Jobs Act of 2017 put the whopping $11.4 Million exclusion amount into effect – but the law is only temporary. The law will sunset and for the year 2026, the exclusion amount will automatically drop to $5 Million (adjusted for inflation) if Congress fails to act by the end of 2025. Many estate planning practitioners believe the exclusion will revert to an amount of approximately $6 Million for 2026.

Planners have raised questions due to the temporary nature of the $11.4 Million exclusion amount. In the event that a gift is made in accordance with the applicable exclusion amount in effect at the time the gift was made, but the exclusion amount decreases by the time of the donor’s death, will the donor’s excess gift be subject to a “clawback” and, accordingly, be included in the donor’s taxable estate for Federal estate tax purposes? In an effort to resolve the question, on November 20, 2018, the IRS released a proposed regulation to eliminate “clawback” for estate and gift tax purposes.

The IRS proposed regulation provides that the donor’s estate can compute its estate tax credit using the higher of the “Basic Exclusion Amount” applicable to gifts made during life or the “Basic Exclusion Amount” that applies on the date of the donor’s death. REG-106706-18, (83 Fed. Reg. 59343).  Therefore, if a donor dies on or after January 1, 2026, but made taxable gifts prior to 2025 relying on a higher exclusion amount and, in the year of his or her death, the applicable lifetime gift tax exclusion amount is lower than the amount gifted prior to 2025, the donor’s estate will have the benefit of using the higher exclusion amount that applied during his or her life. The proposed regulation should inspire large gift planning and year-end gift planning in 2019.  We encourage you to contact us if you wish to discuss gifting as a part of your estate planning.

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What You Should Do Now to Make Your Executor’s Job Easier

by John P. Beyel

Sorry to begin with such a sobering thought, but we are all going to die.  Most frequently, the Executor of your Estate is someone with whom you had a close relationship:  either a spouse, child or close friend.  They are dealing with your loss.  You have asked them to serve as Executor, a role for which most persons have had no experience.  What can you do now to make their job easier?

First, make certain that the person you name to serve as Executor knows you are making this request of them.  Verify they are willing to serve in that capacity.  Tell them where they can find the original of your Will and where they can find a list of instructions which you will make available for their use.  That list of instructions should identify accounts, insurance policies, whether you have a safe deposit box and, if so, in what institution and the passwords for all of your digital accounts.

It is helpful to you to create a document reflecting your current financial information.  It really simplifies the job of Executor if such a document is available with this information.  Remember, you don’t need to tell your Executor what you have by way of assets at this time.  They simply need to know how they can readily determine the answer to that question when called upon to fulfill their responsibilities.

Many families end up squabbling over items of personal property.  Often, it makes little difference whether the items have significant monetary value.  I want that ring, Mom promised me the grandfather clock, Dad promised me his baseball autographed by some major league star.  Avoid, or at least minimize, this problem by creating a List.  On the List, you can identify individual items of personal property and the person who is to receive them.  Make sure there is only one such List in existence at any moment in time.  You must sign the List and remember to date it as only the most recent List will be effective.

Have you named a person to serve as your funeral representative in your Will?  In the absence of doing so, most states have a statute which establishes the priority ranking for the person to carry out your wishes.  That sounds fine, but if your spouse has passed and you have children, each child has equal right to make those choices.  If they don’t agree, how do they iron out any disagreement?  Name one person and make certain that individual knows your wishes and will be willing to carry them out on your behalf.

When did you last update your Will?  Did you list individuals who are no longer living and for whom you have named no successor?  If you named a charity, is that charitable institution clearly identified?  Does it exist?  For example, there have been several situations in which a decedent named a Catholic school or other organization to which they had a strong attachment.  However, by the time they passed away, that institution was no longer in existence.  In such a case, what is the Executor required to do?  Perhaps it is time to review your Will and update it to address this potential problem.

Finally, and speaking from experience, if you have lived in your home for a long time you probably have accumulated many “treasures”.  It is the responsibility of the Executor to review those items, sell the items unless specifically given to someone through your List, decide what to discard and make the arrangements to do so.  If you are like me, maybe it’s time to clean out the attic, the basement and other cubbies in which you have stored your children’s grade school papers or “stuff” you got from your parents when they died.

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What is a Funeral Agent, and Why Do I Need One?

by Kathleen N. Fennelly

In 2003, the New Jersey Legislature amended the New Jersey Cemetery Act to permit individuals to designate a personal representative, known as a funeral agent, to control the individual’s funeral arrangements and disposition of his/her remains.  See N.J.S.A. 45:27-22(a).  The designation of a funeral agent must be included in your will to be enforceable.  If a decedent does not appoint a funeral agent in his or her will, the statute sets forth the order of those with the right to control the decedent’s funeral and the disposition of his/her remains.  The order of priority set forth in the statute is as follows:

  1. The decedent’s surviving spouse, civil union partner, or domestic union partner;
  2. A majority of the surviving adult children of the decedent;
  3. The surviving parent or parents of the decedent;
  4. A majority of the brothers and sisters of the decedent; and
  5. Other next of kin of the decedent according to the degree of consanguinity.

What happens when the people set forth in the statute can’t agree?  In a recently published decision, Matter of the Estate of John E. Travers, Jr., No. P-2253-2017, 2017 WL 10841709 (N.J. Super. Ct. Ch. Div. Nov. 17, 2017), the New Jersey Superior Court provided guidance over how to resolve disputes where individuals with equal statutory standing cannot agree on funeral and burial arrangements.

John E. Travers, Jr., died unexpectedly at the age of twenty-two.  Travers was not married, and had no children.  He did not have a will, and therefore had not appointed a funeral agent.  Pursuant to the statute, John’s parents had the first priority to control his funeral and the disposition of his remains.  However, John’s parents, who were divorced when John was 14, could not agree on the appropriate disposition of their son’s remains.  John’s father wanted John’s remains to be buried, while his mother wanted John’s remains to be cremated.  Each parent provided the court with reasonable, personal and emotionally-charged explanations for their respective positions.

The Court identified four factors to be considered in any dispute where next-of-kin of equal statutory standing cannot agree on funeral arrangements and disposition of remains.  Those factors are:

  1. Which person is more likely to abide by the wishes and desires of the decedent as expressed through communications with another, to the extent the decedent made those communications;
  1. Which person established a closer relationship to the decedent, and is thereby in a better position to surmise the decedent’s desires and expectations upon death;
  1. Which person is more likely to adhere to the religious beliefs and/or cultural practices of the decedent, to the extent that funeral arrangements and/or disposal of remains are addressed by such beliefs and practices, and to the extent that those beliefs and practices are relevant to inform the court as to the wishes, desires and expectations of the decedent upon death; and
  1. Which person will ultimately be designated as administrator(s) of the estate and act in the best interests of the estate to: (a) determine the costs, funeral arrangements and/or disposition of human remains; (b) assess the ability of the estate to pay for the costs of funeral arrangements and/or disposition of human remains; and (c) arrange for alternative funding and/or resources to effectuate the funeral and/or disposition in the event that the estate does not have the ability to pay for the costs of human remains.

After reviewing these factors, the court concluded that John’s father should be granted the authority to control the disposition of his son’s remains, because John had a closer relationship with his father than with his mother.  John lived with his father following his parents’ divorce, and was employed full-time by his father in the family business.  John only saw his mother sporadically and primarily communicated with her through telephone calls.  Based on these facts, the Court concluded that John’s father was in a better position to surmise John’s wishes and desires for the disposition of his remains.

The appointment of a funeral agent in your will is extremely important.  It is the best way to avoid a dispute between family members and to ensure that your wishes regarding your funeral and the disposition of your remains are honored.  While sharing your wishes with family members prior to your death is important, it is not enough.  What if you were to die while you were in the middle of a divorce?  Your soon-to-be ex-spouse would control your funeral.  Or if you outlive your close family members, your funeral could be left in the hands of a distant family member with whom you have not had any relationship.

Your funeral agent should be someone who you are confident will adhere to your wishes, regardless of the order of priority established by the statute, and regardless of their personal beliefs.  Your funeral agent does not have to be the same person you appoint as the executor of your will – you can appoint a family member, a friend, or even a clergy member.

We encourage you to contact the firm if you have any questions about the appointment of a funeral agent.

Please Pass the Turkey, and Sign that HIPAA Authorization Form

by Kathleen N. Fennelly

Many families with college students are eagerly anticipating their return for Thanksgiving break.  In the flurry of making all of the necessary preparations for college, it is easy to lose track of the fact that most college students either are 18, or will turn 18 during their freshman year.  Once a child turns 18, parental authority ends.

In order to ensure that parents will be provided with medical information and are able to act on behalf of an adult child in the event of a medical emergency or illness, parents should consider getting three documents in place before your adult child goes off to college, or when they are home for the next break:

  1. HIPAA Authorization Form

HIPAA stands for the Health Insurance Portability and Accountability Act, which was passed by Congress in 1996.  HIPAA privacy regulations require health care providers to develop and follow procedures that ensure the confidentiality and security of health information. In short, without this form, medical providers are prohibited from sharing medical information with anyone other than their patient.  A signed HIPAA authorization form allows health care providers to disclose health information to anyone designated on the form, including parents.   Your child can limit the information that will be disclosed pursuant to the form, so that sensitive information regarding mental health treatment and drugs remains private.

  1. Health Care Power of Attorney

By signing this document, your adult child designates one or both parents as her/his proxy or health care representative.  The health care proxy/parent is granted legal authority to make medical decisions for the adult child in the event the child becomes incapacitated and is unable to make decisions on her/his own behalf.

  1. General Durable Power of Attorney

Having this document naming one or both parents as agent will allow a parent to make financial decisions and handle legal affairs for their adult child in the event that the child becomes incapacitated.  A general durable power of attorney will allow a parent to, among other things, manage bank accounts, pay bills, sign tax returns, and apply for government benefits.

Important considerations:

  • Once the documents are properly signed, scan them so that they are easily available on your cell phone and computer
  • Provide copies of the HIPAA authorization form and Health Care Power of Attorney to the health services office at your child’s college
  • If your child is attending an out-of-state college, sign separate documents in both your home state, and the state where your child’s college is located
  • Remember that your adult child can revoke the documents either orally or in writing
  • Make sure that your child shares passwords for any online services that you may need to access in the event of a child’s illness or incapacity, including online banking accounts, and credit card accounts
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2018 Year End Estate and Gift Tax Planning Update

by Sharon Holland Purtill

In the beginning of the year we alerted our clients to changes in the federal and state estate and gift tax laws.  As we approach the end of the year we want to remind you of year-end gifting opportunities as well as some state estate tax revisions enacted during the year.

We recommend that clients review their estate plan at least every five years, or sooner if there are changes in your financial or personal life, changes in your relationship with your fiduciaries or beneficiaries, or changes in the state or federal estate tax law.

Federal Estate and Gift Taxes.  On January 1, 2018, the federal estate tax exemption doubled to $11.2M per person ($22.4M for married couples).  The exemptions are set to expire and revert back to $5M per person, adjusted for inflation, after 2025.  Your beneficiaries will continue to receive the benefit of a “step up in basis” to the date of death value on assets included in your estate.  If a new administration is elected after the 2020 federal elections it is possible the exemptions may be reduced back to current levels.  Thus, consideration should be given to utilizing the large estate and gift tax exemptions while they are available.  However, clients must also weigh the potential estate tax savings against the loss of a “step up in basis” at death.  The Act provides for regulations to be implemented to prevent the gifts which utilized the additional exemptions from being “clawed back” at death in the event the exemption sunsets (as it is scheduled to do in 2025).

Federal Gift Tax Annual Exclusion.  The federal gift tax annual exclusion is $15,000 per recipient for 2018 (increased from $14,000 due to an adjustment for inflation).  There is an unlimited gift tax marital deduction for U.S. citizen spouses.  The annual exclusion for gifts to non-citizen spouses is $152,000 for 2018.

State Estate and Gift Taxes.  States that impose their own estate tax will not be affected by the Act.  Clients in Connecticut must consider the impact of the state gift tax (the only state with a gift tax).

  • Connecticut Estate and Gift Tax: The Connecticut estate and gift tax exemption rose to $2.6M in 2018.  The exemption is scheduled to rise to $3.6M in 2019, $5.1M in 2020, $7.1M in 2021, $9.1M in 2022 and match the federal exemption in 2023 (currently $11.8M but indexed for inflation).  The federal exemption will revert back to $5.1M in 2026. In addition, beginning January 1, 2019, the cap on the maximum estate tax imposed on the estates of decedents dying on or after January 1, 2019, and the maximum gift tax imposed on taxable gifts made on or after January 1, 2019, will lower from $20M to $15M.
  • Massachusetts Estate Tax: The Massachusetts estate tax exemption remains at $1M per person.
  • New Jersey Estate and Inheritance Tax: Effective January 1, 2018, New Jersey eliminated its estate tax, but the inheritance tax remains in effect.  Transfers to spouses, children and grandchildren will remain inheritance tax-free, however, any transfers to a sibling, aunt/uncle, niece/nephew, friend, etc., would be subject to the inheritance tax.  Many professionals believe the estate tax may be re-introduced by a new legislature.
  • New York Estate Tax: The New York Estate Tax exemption is S5.25M for 2018.  In 2019 the New York estate tax exemption will be about $5.5M adjusted for inflation.  If your estate exceeds the exemption, then the entire estate is subject to the estate tax.

Update Your Estate Planning Documents:  Many estate plans provide for the creation of a Family Trust (or Credit Shelter Trust) upon the first spouse to die.  In older estate plans, the formula for funding that trust may continue to reference funding it with the maximum amount that can pass free of federal estate tax.  The doubling of the federal estate tax exemption could result in significant state estate tax.  In newer plans, the funding formula may have been based upon the maximum state estate tax exemption.  With the larger state estate tax exemptions this may no longer be necessary or a desired result.  Estates below the state and federal exemption may be suitable for a simplified estate plan.  Clients should contact the Firm to review and update their estate plans.

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NEW JERSEY SUPREME COURT YEAR IN REVIEW TAX CASES

by Robert J. Alter

As of June 30, 2018, the New Jersey Supreme Court addressed one tax case that originated in the Tax Court during the 2017-2018 court year.

REAL PROPERTY TAX

In EQR-LPC Urban Renewal North Pier, LLC v. City of Jersey City, 231 N.J. 157 (2017), the New Jersey Supreme Court affirmed the judgment of the Appellate Division substantially for the reasons expressed in that Court’s per curiam opinion, and did not write a plenary opinion.

Plaintiffs had appealed from the Appellate Division’s reversal of the Tax Court’s grant of partial summary judgment to plaintiffs on their claim seeking a declaratory judgment that financial agreements that they had entered into with the defendant in 2000 and 2001 incorporated 2003 amendments to the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 to 22 (“LTTE”).

The underlying facts were as follows:  Plaintiffs qualified as urban renewal entities under the LTTE law.  To obtain property tax exemptions for their urban renewal projects involving the construction of an apartment building, plaintiffs entered into financial agreements with the defendant.  The agreements obligated plaintiffs to pay an annual service charge equal to 15 percent of the annual gross revenue, and to pay any excess net profits to defendant.

Plaintiffs submitted an excess net profits calculation for 2013, calculating their allowable profits using the profit calculator formula rate provided by the 2003 amendments to the LTTE law, rather than the formula rate contained in the version of the LTTE law in effect when the parties entered into their agreements with the defendant in 2000 and 2001.  Under the 2003 amendment rate, plaintiffs did not have any excess profits and consequently, didn’t owe any excess net profit payments to the defendant.

The defendant sent a default notice, contending that plaintiffs did have an excess profit because it should have used the profit calculation formula contained in the version of the LTTE law in effect at the time the subject agreements were executed.

The Tax Court granted summary judgment in favor of the plaintiffs and held that the phrase “as amended and supplemented” in the agreements demonstrated the parties’ intent to incorporate future amendments to the LTTE law in their agreements.

The Appellate Division reversed the Tax Court’s grant of summary judgment – it ruled instead that the word – for – word copying of the profit calculation formula contained is the version of the LTTE law in effect at the time the agreements were written (as it existed in 2000 before the 2003 amendments) evidenced the parties’ intent to specifically adopt that formula.  The Appellate Division further held that the phrase “as amended and supplemented” was intended to incorporate amendments to the LTTE law from its initial adoption in 1991, up to the date the agreements were executed, not future amendments.

In reaching its decision, the Appellate Division panel found support for its interpretation in noting that it is contrary to fundamental public financing concepts for the Legislature to adjust the terms of municipal tax abatement contracts after the fact.

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TAX CUTS AND JOBS ACT (THE “ACT”) – “CLAWBACK”

by Alfred Wheeler

Prior to the passage of the Act, effective January 1, 2018, the individual exclusion from Federal estate, and gift tax was approximately $5,600,000.00.  Under the Act, the exclusion is doubled to approximately $11,200,000.00, per individual.  That increased exclusion, however, “sunsets” on January 1, 2026, when it will revert to the exemption of $5,600,000.00 in effect prior to January 1, 2018.  This Article will discuss the possibility of a “clawback” of the doubling of the exclusion, when the sunset takes place and the exclusion reverts to the pre-existing $5,600,000.00, i.e. will any gifts made between 2018 and the sunset date be “clawed back” to the taxable estate of the donor who passes away after the sunset date.

Discussion

As a result of the increase in the gift and estate tax exclusions individuals have the opportunity to make gifts utilizing the increased exclusion up to approximately $11,200,000.00 per person, without subjecting those gifts to either life time gift tax, or being included in the individual’s taxable estate upon his death.

Of course, where assets are gifted, those gifts would not be entitled to a step up in income tax basis of those assets upon the death of the donor.  Thus, the advisability of such gifts will continue to require an analysis of the potential income tax cost of the loss of that step up in tax basis in case of a sale of any such assets following the death of the donor.

However, utilizing the increased gift tax exclusion during life time, does raise a question as to whether the death of the donor after the “sunset” of the increased exemption, when the exemption reverts to the pre January 1, 2018 amount, will result in some form of “clawback” or recapture of the benefit of the increased exclusion.  Thus, will the IRS in determining the taxable estate of the donor who dies after the sunset date, apply the exclusion at the time of the gift, i.e. when the Act doubling of the exclusion was still in effect, or will it apply the amount of exemption at the time of death, when the exclusion has been “sunset” back to $5,600,000.00, thus, “clawing back” the benefit of the pre sunset exclusion.

To deal with this question, the Act contains a separate provision, which together with a clarifying Conference Committee Report, directs that the Secretary of the Treasury adopt regulations necessary or appropriate to deal with the difference “between the exclusion amount applicable at the time of a decedent’s death”, and that applicable “at the time of any gifts by the decedent.”

What is not clear is whether that provision directs the adoption of regulations requiring the inclusion in the taxable estate of an individual who passes away after the sunset, of the full amount of the gifts made during life, but only allowing the lower exclusion amount in effect following the sunset, in determining the estate tax due i.e. the “clawback” approach.  That approach could result in an additional estate tax in excess of $2,000,000.00, depending on the amount of gifts made during the pre-sunset period.

On the other hand, the non “clawback” approach would only include in the taxable estate of a donor who dies after the sunset dates, pre sunset gifts in excess of the exclusion in effect at the date of gift, i.e. $11,200,000.00.

A related issue is what, if any, regulations will be adopted to deal with the situation where the donor during the pre-sunset period may not have utilized the then full amount of the gift and estate tax exclusion.  It is possible that, in those circumstances, the donor may still have the unused exclusion amount available for gift tax purposes, even after the sunset indeed even after sunset, the unused portion of the pre-sunset lifetime gift tax might be used in calculating the exclusion amount for estate tax purposes.

Clearly, uncertainly exists as to how the Treasury Department will exercise its statutory authority to issue regulations dealing with the sunset and the change of the exclusion amounts.  The IRS has published a so-called 2017-2018 Priority Guidance Plan, in which it indicates that a near term priority in issuing guidance with respect to the Act is “Guidance on computation of estate and gift taxes to reflect changes in the basic exclusion amount”.  Although no specific date with respect to such guidance has been reported, it is expected sometime in 2018.

Obviously, planning now to take advantage of the current increase in the lifetime exemption to $11,200,000.00, leaves uncertainty as what the effect may be following sunset, and how the Treasury would approach its mandate to deal with the different exclusions existing at the date of the gift and following sunset.

In general where the donor is in a position to take advantage of the increased gift tax and estate tax exclusion, it may still be beneficial to do so.  Even if the IRS were to issue regulations clawingback the amount of the pre sunset exclusion in excess of the post sunset exclusion amount, into the taxable estate, in case of death following sunset, which many do not believe will happen, it would likely be subject to challenge as exceeding its statutory authority. In any event, this will all depend on the structure of the donor’s estate plan, and at a minimum, those individuals in a position to take advantage of the increased exclusion should reexamine their current estate plan.

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NEW JERSEY’S 2018 TAX AMNESTY PROGRAM OFFERS RELIEF TO MANY TAXPAYERS

by Robert J. Alter

On July 1, Gov. Phil Murphy signed into law a tax amnesty measure that offers relief to many taxpayers in a variety of situations and will help bridge the revenue shortfall in the state budget.  It requires the Director of the Division of Taxation to establish a period not exceeding 90 days in duration which shall end no later than January 15, 2019.  Anyone behind on taxes owed for the time period between February 1, 2009 and September 1, 2017 would be eligible to participate, as long as they are not under criminal investigation.

Similar to New Jersey’s prior six amnesty initiatives, the new law provides for complete forgiveness of all penalties and one-half of the balance of accrued interest that is due as of November 1, 2018 in return for nonrefundable payment of the tax and remaining one-half of accrued interest due and a waiver of the right to appeal any liability paid under amnesty.

Additionally, a significant aspect of this amnesty law is that it not only applies to unassessed amounts, but also to amounts currently under audit or being contested with the Division of Taxation, either at its Conference Branch or in the New Jersey Tax Court.

The new law applies to all state taxes administered by the Division of Taxation (e.g., Gross Income, Sales and Use Tax, Corporate Business Tax, Motor Fuels and so on) but does not apply to unemployment-type taxes administered by the Department of Labor.

Specifically, it applies to state tax liabilities for tax returns due on and after February 1, 2009, and prior to September 1, 2017. Consequently, for example, it can be used to obtain relief for a taxpayer’s 2009 through 2016 Gross Income Tax, Corporate Business Tax returns, and for all sales and use tax quarters ending December 31, 2009 through June 30, 2017.

The Division of Taxation has not yet announced starting date for the amnesty period, which must end by January 15, 2019. Thus, the taxpayers will have to make an amnesty payment within the time period established by the Director to take advantage of amnesty relief.

In that regard, in order to be able to comply with the amnesty period tax payment deadline, it would be advisable in many situations for representatives to initiate contact with the Division of Taxation to obtain an agreed-to tax amount figure in time to mail a payment by the end of the amnesty period.

Exceptions and Pitfalls

An important exception to the tax amnesty bill is that it does not apply to any taxpayer who at the time of the amnesty payment is under criminal investigation or charge for any state tax matter, as certified by a county prosecutor or the attorney general to the director, Division of Taxation.

However, this exception is expected to be narrowly interpreted by the Division of Taxation which under the prior amnesty program took the position that this exception to amnesty relief did not apply to a taxpayer who was currently being investigated by its Office of Criminal Investigation, so long as the case had not been referred for prosecution to the Attorney General’s Office.

Consequently, it appears that this amnesty measure, as well, could be used to preclude a criminal tax prosecution in such a situation.

With respect to potential, federal tax collateral consequences, the Division of Taxation has represented in the past that it has no intention of affirmatively providing any information obtained through the amnesty program to the Internal Revenue Service.

In that connection, however, tax representatives must recognize that if the IRS makes a request for amnesty-related data pursuant to the general information-sharing agreement it has with the Division of Taxation, that the division will comply.

Therefore, the risk that an amnesty disclosure will result in a federal tax inquiry should be carefully considered in deciding whether, and how, to make an amnesty filing.

Furthermore, while the good news of the amnesty legislation is the complete forgiveness of penalties and hefty costs of collection fees and one-half of accrued interest, the bad news is that if a taxpayer is eligible for amnesty and fails to take advantage of it, an additional unwaivable 5 percent penalty will be automatically added to the already imposed statutory penalties and interest on any tax liability that would have been subject to the amnesty program.

Wide Range of Uses

Next, it is important for tax representatives to recognize that practically speaking, the amnesty program is not limited to being used to preclude a criminal tax prosecution in a failure-to-file-tax-return situation. It can also be used to resolve Nexus issues, and for example, to shut down ongoing tax audits, since the Division of Taxation is instructing its auditors to re-evaluate going forward with audits when amnesty payments are made.

In addition, the amnesty program can be useful in removing Certificates of Debt — the legal equivalent to money judgments — which have already been docketed by the Division of Taxation for unpaid penalty and interest, as well as saving clients’ money in situations where they have already entered into deferred payment agreements with the Division or its third-party collection representatives to liquidate outstanding tax liability.

Moreover, in some situations it could be used to settle tax disputes in the Tax Court or those pending at the administrative/appeal Conference Branch stage.

Finally, in areas like sales and use tax, it can be used for some tax quarters and not others, thereby reducing overall exposure in tax contests, and especially useful in Nexus situations after the U.S. Supreme Court’s recent rejection of Quill’s physical presence test in the South Dakota v. Wayfair, Inc. case.

Audit Concerns

Although an amnesty payment is nonrefundable, the Division of Taxation retains the right to conduct an audit of any amnesty payment situation, and any additional tax determined by the Division in such a situation would be subject to interest and penalties and, of course, subject to appeal by the taxpayer.

Because of the Division’s expressed policy of not targeting amnesty program situations and processing information obtained through the program through the normal system, however, a taxpayer’s chances of being audited will not be increased by an amnesty program filing.

In view of this amnesty program legislation’s usefulness, and the potential savings it offers, clients with outstanding or potential tax liabilities, as well as those currently contesting an assessment with the Division of Taxation, should be contacted to determine whether amnesty arrangements can be structured.

Reprinted with permission from the July 9, 2018 edition of www.LAW.com© 2018 ALM Media Properties, LLC. All rights reserved.

Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

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