Take-Away: On November 8 Treasury published its Priority Guidance Plan with regard to tax regulations and other estate and gift tax topics that will be addressed before June 30, 2019 that are of interest to trusts and their administration.

Key Topics in the Priority Guidance Plan:

Fiduciary Investment Advisory Fees: Top of the list will be expected guidance that clarifies the tax deductibility of expenses described in IRC 67(b) and (e) that are incurred by estates and non-grantor trusts. The scope of this project is to clarify trust and estate administration expenses that will continue to be tax deductible because of IRC 67(e),  despite the projected 8 year ‘suspension’ of all itemized deductions under IRC 67(a) by the new IRC 67(g) created in the 2017 Tax Act. It is likely that deductibility of these expenses incurred by a trust will continue to be limited by the current treatment of them in the Regulations with regard to fiduciary investment advisory fees, including the portion of a ‘bundled’ fiduciary fees attributable to investment advice. This probably means a total disallowance of the deduction, not just the application of the 2% floor limitation. [IRS Notice 2018-16 clearly states that “nothing in section 67(g) impacts the determination of what expenses are described in section 67(e)(1).”]

Excess Deductions Distributed: In the last year of a trust’s existence, any unused or ‘excess’ deductions of the trust can pass through to the individual beneficiaries. [IRC 642(h).] Apparently regulations will address the ‘availability’ of these ‘excess’ deductions.

IRC 199A: To be expected, there will be computational, definitional, and anti-avoidance rules under IRC 199A and IRC 643(f) [the latter being the Service’s ability to ‘disregard’ non-grantor trusts.] There is also promised a Revenue Procedure on the methods to be used to calculate W-2 wages to calculate the IRC 199A 20% business profits tax deduction for many small businesses.

Basis Consistency: Promised are final Regulations under IRC 1014(f) and IRC 6035 with regard to basis consistency between an estate and persons who acquire property from the decedent. Hopefully the final Regulations will relieve some of the more burdensome rules under the temporary Regulations like the 30-day due date contained in the basis consistency Regulations and the burdensome requirements for affidavits that are required to document the tax basis of property to be distributed from the decedent’s estate.

GST Allocation: Promised are final Regulations under IRC 2642(g) that describe the circumstances and procedures under which an extension of time will be granted in which to allocate GST exemptions.

Grantor Trusts: Treasury hopes to provide guidance on the basis of grantor trust assets at the grantor’s death. [IRC 1014.]

Alternate Valuation Date: Treasury hopes to provide guidance on the imposition of restrictions on estate assets during the six months alternate valuation period. [IRC 2032(a.)] This would supplement the proposed Regulations that were issued back in 2011.

Personal Guarantees: Treasury hopes to provide guidance with regard to personal guarantees given by a decedent, whether they are deductible under IRC 2053 as an outstanding liability of the decedent, and in particular, the application of present value concepts used to determine the deductible amount of debts,  expenses and claims against a decedent’s estate.

Present Value Calculations: Treasury hopes to provide Regulations with regard to the use of actuarial tables in valuing annuities, interests for life, terms of years, and remainder or reversionary interests under IRC 7520. This is probably just a routine revision of the last census information, since IRC 7520(c)(2) mandates the revision of the actuarial tables every 10 years. The new tables are supposed to be effective by May 1, 2019.

Clawback: This is the concept used to describe the concern with regard to the federal estate taxes (which calculation adds back to the decedent’s taxable estate the value of the decedent’s lifetime gifts) on the estate of a donor who makes a gift before the 2026 sunset date, but who dies after the sunset date, i.e. can Treasury ‘clawback’ gift taxes after the donor’s death from a time when the gift tax exemption was large enough to shelter the transfer from an gift tax by adding their values back to the decedent’s estate?  The targeted completion date for the proposed ‘clawback’ regulations is supposed to be before the end of 2018. Many commentators have remarked that due to the remarks contained in the Congressional Record last December, it was clear that Congress did not intend there to be any ‘clawback’ caused by large gifts prior to the sunset date.