Federal Estate and Gift Tax for 2018

In 2011, the unified estate and gift tax exclusion amount (the amount that you can transfer during lifetime or upon death without incurring a federal estate or gift tax) was set at $5 million. This amount has been adjusted for inflation each year since then. In 2017, the applicable exclusion was $5,490,000. For 2018, it was scheduled to increase to $5,600,000. Through appropriate planning or through portability, this amount could be doubled for married couples with the total exemption per couple to be $11,200,000. However, the Tax Cuts and Jobs Act of 2017 doubled the applicable exclusion to $11,200,000, or a total of $22,400,000 for married couples. These amounts will continue to be adjusted annually for inflation. However, unless there is further legislation to extend the increased amounts, they will sunset at the end of 2025. If no additional legislation is passed, then in 2026, the limits will revert to the $5,600,000 amount adjusted for inflation. 

Once an estate is over the exclusion amount, the tax rate remains at 40%. 

The Annual Gift Tax Exclusion (the amount that you can give to an unlimited number of individuals without consuming any of your lifetime exclusion amount or incurring a gift tax) is $15,000 for 2018 and future years (subject to future increases to reflect inflation). A married couple can join together and give $30,000 per year to any one person without impacting the exclusion amount. Gifts in excess of the annual exclusion require the filing of a Federal Gift Tax Return (due at the same time as your Federal Income Tax Return). However, no gift tax is payable unless cumulative gifts in excess of the annual exclusion exceed the lifetime exclusion. 

The exclusion for tuition payments made directly to educational organizations and to health care providers continues in effect. This means that you can pay the tuition or medical bills of any other person, in an unlimited amount and whether or not related to you, as long as the payment is made directly to the school or provider. These payments are in addition to the Annual Gift Tax Exclusion and have no impact on your total exclusion amount.



Homeowners & Landlords Have New Safety Requirement

The Nebraska Legislature passed the Carbon Monoxide Safety Act (the ” Act”) in 2016. The Act is effective on January 1, 2017. The Act requires a carbon monoxide alarm be installed in all multi-family or single family dwellings constructed after January 1, 2017. This requirement is only applicable if the dwelling contains a fuel-fire heater or appliance, a fireplace, or an attached garage. The carbon monoxide alarm must be installed and located on each habitable floor or as specified in any building code adopted by a political subdivision or the State of Nebraska.

Not only is the alarm required for new construction, but it is also required after January 1, 2017 for any interior remodel or alteration which requires a permit. If the dwelling unit is rental property, a carbon monoxide alarm must be installed if there has been a change in tenant occupancy. Prior to the commencement of a new tenant occupancy, a carbon monoxide alarm must be installed on each habitable floor. This is only required for rental property where a fuel-fired heater or appliance, fire place or an attached garage is present. The owner of the rental property must provide batteries necessary to make the carbon monoxide alarm operational or replace any carbon monoxide alarm if notified by a tenant it was stolen, removed or missing or not operational during the tenants occupancy. If there is a deficiency in the carbon monoxide alarm, it must be repaired by the owner when notified by the tenant.

A tenant of a rental property also has duties in regard to the carbon monoxide alarm. A tenant must keep, test and maintain the alarm in good repair, notify the owner if the alarm is stolen, removed, found missing or not operational during their occupancy. If the tenant finds any deficiency in the alarm they cannot correct, they must also notify the landlord.

The Seller’s Disclosure Statement provided by the Nebraska Real Estate Commission has also been amended to have a disclosure in regard to carbon monoxide alarms. Beginning in 2017, a carbon monoxide alarm must be placed on habitable floors in dwelling units, both single and multi-family, as well as rentals. This requirement is separate from smoke detecting devices, however, a carbon monoxide alarm and a smoke detecting device can be combined if they give separate and distinct alarms.

Want to Leave Money to a Charity on Your Death – Use Your IRA

If you are one of those persons who would like to leave money to your church or other charity on your death and have an individual retirement account (“IRA”), the most efficient way to do that from a tax standpoint is to make the charity a beneficiary of your IRA. The charity will not have to pay income tax on the IRA monies received nor will there be any estate or inheritance taxes assessed with regard thereto. If your estate or an individual is a beneficiary of your IRA, the recipient will have to pay income taxes on the monies received and there may possibly be inheritance taxes and estate taxes assessed with regard thereto. A person with an IRA and other estate assets who wants to leave his or her estate to one or more charities and individual beneficiaries should first use his or her IRA to benefit the charities. Any amount of an IRA not left to a charity could still be left to individual beneficiaries who would still owe income tax on the amount received by them. If the intended benefit to the charity could not be funded entirely through the IRA, other estate assets could still be used for that purpose. Generally there would be no income tax savings by the use of other estate assets to benefit the charity since income taxes would likely not be owing by individual beneficiaries who receive other estate assets. On the other hand, other estate assets left to a charity, as opposed to an individual, would not be subject to inheritance taxes and estate taxes.

Nebraska’s New Model Business Corporation Act

Much of Nebraska’s Corporate law has been changed as January 1, 2017. As happens from time to time, parts of the Nebraska Statutes are updated to include provisions as suggested by a committee of the American Bar Association. The idea is to promote more uniformity of laws between States. While there are many changes that will rarely impact a typical client’s closely held corporation, there are a few that a typical client may be interested in.

  1. The prior law makes no allowance for electronic notices. Bylaws may now authorize or require email delivery of notices of Directors. For email delivery to Shareholders, consent is required and can be revoked at any time and is deemed revoked if two consecutive emails are returned as undelivered.
  2. If shares are being issued for consideration other than cash, approval of existing Shareholders is required if the shares to be issued represent more than 20% of the current voting power.
  3. Nebraska Statutes provide that Shareholders of 10% of the voting power may call a special meeting. Under the new law, the Articles of Incorporation can increase this amount to 25% of the voting power.
  4.  The new law adds approval for acts such as amendment to articles, merger, or sale of substantially all assets, by a majority of votes cast at a meeting where a quorum is present.
  5. Under the prior law, where Shareholder approval is required, it could be obtained by unanimous written consent of all Shareholders. Except for the election of Directors, the new law allows for the Articles of Incorporation to provide for written consents from the holders of a majority of the shares for most matters. Notice must then be given to all Shareholders within 10 days of approval of the action.
  6. The new law allows for the Board of Directors to approve remote participation by Shareholders such as conference call or internet communication (e.g. Facetime or Skype).
  7. In the case of a Corporation where the directors are deadlocked, a provision has been added to provide for an action by Shareholders to appoint a custodian, without having to resort to judicial dissolution.
  8. Each Nebraska Corporation is required to file an Occupation Tax Report in even years. The failure to file this report and pay the occupation tax report will result in administrative dissolution of the Corporation by the Secretary of State. This can be a problem if, for example, a dissolved Corporation owns real estate. Title Companies will generally require a dissolved Corporation to be reinstated in order to transfer good title to its real estate. Unfortunately, the prior law did not provide for reinstatement of a Corporation if it had been administratively dissolved more than 5 years ago. Fortunately, a change has been made in the new law and reinstatement is now possible after 5 years by payment of a $500 fee.

Keep in mind that these changes only apply to Nebraska Corporations. These changes don’t apply to other entities such as Limited Liability Companies or Partnerships.

Open Meetings Act Update: If it looks like a duck and quacks like a duck . . . .

With a new year and new board and council members being sworn in, it is a good time to revisit the Open Meetings Act (the “Act”). This year, we have recent guidance from the Nebraska Court of Appeals. On December 13, 2016, the Court of Appeals issued its opinion in Koch vs Lower Loup Natural Resource District, Case No. A-15-559. In Koch, the Court of Appeals considered whether a committee of the Lower Loup NRD was required to follow the Act.

Subcommittees are common among boards and councils. A “subcommittee” with less than a quorum of the entire public body is excluded from the Act’s requirements, unless the subcommittee is holding public hearings, making policy, or taking formal action on behalf of the parent body. Often, boards and councils believe that as long as less than a quorum is present at a meeting, the “subcommittee” exception applies and the Act need not be followed. The Koch case shows there is more to the analysis.

In Koch, the Court of Appeals noted that the subcommittee exception in the Act was enacted to accommodate a public body’s practical need for information in order to conduct business.   On the other hand, the Court of Appeals acknowledged that an “advisory committee” is specifically subject to the Act and the Act prohibits a public body from “rubber stamping” or reenacting decisions reached outside a public meeting. Thus, regardless of the name “subcommittee,” the Court will look at the purpose and function of the subcommittee to determine whether it must follow the Act.

If a subcommittee of less than a quorum is only gathering information to be educated on a topic, then the subcommittee does not need to follow the Act. However, if the subcommittee is taking a more assertive or heavy handed role in the public body’s decision making process, such as making recommendations, then the subcommittee should follow the Act.

Tort of Intentional Interference with an Inheritance

The Nebraska Supreme Court recently refused to recognize and adopt the tort of Intentional Interference with an Inheritance in the case of Litherland v. Jergens, 291 Neb. 775 (September 11, 2015). In doing so, the Court affirmed a Gage County District Court’s dismissal of a cause of action alleging unjust enrichment, intentional interference with an inheritance and conspiracy to commit both acts.

According to the facts a decedent, who was survived by a daughter and two stepchildren, left a Will in which the decedent devised a parcel of real estate to the daughter, if the decedent still owned it at the time of death. The decedent then divided the remaining assets, savings accounts, certificates of deposit, and any cash deposited in a financial institution to the daughter and two stepchildren in equal shares. Prior to the decedent’s passing, one of the stepchildren, acting as attorney in fact, sold the real estate and deposited the money into the decedent’s bank accounts to be used for the decedent’s care.

Upon discovering the real estate sale, the daughter filed a complaint in district court alleging unjust enrichment, intentional interference with an inheritance and conspiracy. The allegations were all based upon the stepchild using the power of attorney to sell the real estate and thus redirected benefits of the estate to the attorney in fact and his sister to the detriment of the daughter. At the same time the action was commenced, a proceeding in county court was already pending to probate the decedent’s Will.

The stepchildren filed a motion in district court to dismiss the complaint according to Nebraska Court Rules on Pleadings §6-1112(b)(1) and (6). They argued the court lacked jurisdiction over the claims and failed to state a claim for which relief may be granted. The district court granted their motion reasoning the claim was related to the decedent’s estate and, as such, should have been brought in the county’s probate court. Since a probate proceeding was already pending in the county court, the district court reasoned the county court had already acquired jurisdiction over the decedent’s estate. The Court also found there are remedies available in county court for improperly using a power of attorney to redirect estate property. Therefore, the district court lacked jurisdiction and dismissed the claims.

On appeal the Nebraska Supreme Court faced the decision of whether or not Nebraska should recognize the tort of intentional interference with an inheritance. The Court found the claim requires two showings: the first is to show probate remedies are inadequate, the second is to show the stepchildren were aware of the contents of the Will before the sale. Neither was alleged becsue there are adequate remedies in probate court and, therefore, any tortuous conduct which intentionally interfered with an inheritance was not possible. Finally, the conspiracy claim went away since the Plaintiff did not state a cause of action for any underlying tort.

There are a few important things to take away from this case. The first is an attorney in fact has a very high evidentiary standard to justify its actions. They must provide evidence, which is clear and convincing, to show their actions were expressly authorized by the document nominating them and their actions were the result of the clear intent of the donor. In addition, the transaction must be fair. Next, when someone becomes aware of the misuse of a power of attorney, there are adequate remedies available under the probate court’s jurisdiction.