The Legal Play Podcast

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If you are in need of estate planning, it is critical to enlist the help of a reputable tax attorney to begin navigating the expiration of the 2017 Tax Cuts and Jobs Act. Why act now? Certain provisions of the 2017 Act are set to expire on December 31, 2025, which may have a profound and possibly negative effect on a person’s taxes if they have not engaged in careful tax planning. Add to that the uncertainty of the outcome of the 2024 presidential elections, and clients who anticipate leaving behind large estates will have good reason rework their estate plan.

Provisions of the 2017 Tax Cuts and Jobs Act

Before breaking down the provisions of the 2017 Tax Cuts and Jobs Act, it is important to address the various names this legislation can go by for clarity’s sake. Some commonly used monikers for it are “Pro Tax Law” and the “Trump Tax Bill.”

Regardless of what you call it, the legislation was passed early in the Trump administration and contains some of the following provisions:

• Minimizes corporate taxes
• Increases the gift tax and estate exemption
• Increases opportunity zones which give way to investments and some certain targeted investment loans
• Takes away itemized deductions
• Limits state and local taxes
• Limits casualty losses to federally declared disaster areas
• Eliminates theft loss

The bottom line for this piece of legislation is that it is a major bill that has changed the landscape of taxes and the way the government is funded.

Why Navigating the Expiration of the 2017 Tax Cuts and Jobs Act Is Important for Estate Planning

What is the big deal about this bill that has us discussing it today? Most of the provisions of the 2017 Tax Act are not permanent and are set to expire on December 31, 2025. This means that if Congress does not take any action to extend the current provisions, or change or otherwise alter the pre-existing 2016 law, taxpayers will be forced to revert back to 2016 tax laws.

This potential change is essential for estate planners to understand as well as the implications it could bring. For example, currently the estate tax exemption is around twelve million dollars for an individual and twenty-four million dollars for a couple, although it is important to note that this number changes annually based on inflation. However, if taxpayers must revert back to unchanged 2016 tax laws, that amount will revert back to around a seven million dollar exemption for individuals.

In other words, if Congress takes no action in the next year and a half, it may prove to be a major issue for people doing estate planning who also have a significant amount of wealth.

What Is Estimated to Happen Based on 2024 Election Results?

If former-President Donald Trump is reelected, one might think that since his administration created the bill that its provisions might be extended. However, this is not guaranteed to be a sure thing, primarily due to the Republican to Democrat ratio currently in Congress.

Should it be so simple as to just extend the Trump era tax cuts, it still requires both the House and Senate to pass that legislation, in addition to getting the President’s signature. If Trump is reelected and there is a Republican majority in both the House and Senate, it might be possible for the tax cut provisions to be extended.

If Trump is not elected and there is not a Republican majority in Congress, it is possible Congress could strike some sort of compromise tax bill that will yield completely new tax laws. Although, be forewarned that a divided Congress can result in no progress, and if they take no action at all, it would revert us back to 2016 tax laws.

What To Do for Estate Planning Now

Without knowing what the 2024 election results will be, or what Congress may do before December 31, 2025, there are still actions people can take now. For example, if a parent has a significant amount of wealth such that they could anticipate being able to distribute some to their children, they may have an opportunity to give away between twelve million dollars (for an individual) and twenty-four million dollars (for a couple) to their children in trusts without it being taxed, if done by December 31, 2025. The important thing to note is that this must be done irrevocably, which means parents can never get that money back.

On the other hand, if a parent has twelve million dollars to put into a trust for their child but does not do so, and that person passes away after December 31, 2025 without Congress doing anything to make changes, it is plausible that the child would be exempt from having to pay tax on only seven million dollars of the twelve million. This means the child will have to pay taxes on the remaining five million.

This is the process for money left to children. Money left to a spouse is not taxed until the spouse dies. Money given to charity is not taxed.

How an Attorney Can Help with Navigating the Expiration of the 2017 Tax Cuts and Jobs Act

Some individuals may choose to wait and see the result of the 2024 Presidential election and then try to make changes to their estate documents before December 31, 2025. That method could be difficult for people with complex estates. Drafting competent and enforceable estate documents takes time. It may be inadvisable to wait until after the election and then try to do change or put in place estate plans. In simpler cases, a reputable attorney may be able to assist despite the time crunch.

Ideally, people must realize it takes proactive work and planning to ensure that their estate planning happens as intended and in a timely way. It is wise for individuals to be thinking about what their game plan will be as election day approaches.

Every person’s situation is different, but working with a reputable tax attorney before the need is imminent can give individuals some sense of agency and control over what happens next.

Do not leave navigating the expiration of the 2017 Tax Cuts and Jobs Act until the last minute this election year. Consider reaching out to a tax attorney to help guide you now in multiple scenarios for your estate so that whether you choose to do something before or after election day, you will have a plan in place.

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If you are the beneficiary of a trust, or the beneficiary of the estate of a deceased loved one in which a trust has or should have been created, make sure you understand your role and rights to avoid trust litigation. All trusts must have a trustee to manage the trust and potentially make disbursements to the beneficiaries according to the trust provisions. Sometimes the trustee and the beneficiary are the same person. In this case, there is little conflict. Where the trustee and the beneficiary are not the same person, and the beneficiary and trustee begin to disagree on how best to manage or disburse trust funds, then issues arise. Some of the issues may only be resolved in litigation. If you have arrived at this point, it is essential to work with an attorney who is knowledgeable about trust law and litigation to help you access what you are entitled to.

What Is a Trust?

Essentially, a trust is a contractual relationship by which there are at least three parties:

1. This person gives some type of asset over to a trustee. The asset can be money, accounts, property, etc.
2. The trustee is charged with holding something for the benefit of one or more beneficiaries. A trustee is often a relative, business associate, bank trust department, or formal trust company.
3. Beneficiary (or beneficiaries). The beneficiary is the party that is intended to eventually receive something from the grantor via the trust.

Types of Trusts

There are different types of trusts. For the purpose of today’s discussion, we will limit it to:

• Intervivos Trust. In this type of trust, property is given over during a grantor’s lifetime.
• Testamentary Trust. A testamentary trust can come out of a will from someone who has passed and leaves all or part of their estate to a party such as children or grandchildren.

What to Know About Trust Litigation

Unfortunately, there is litigation that can arise out of trusts. Even if a trust is put together with a knowledgeable attorney, if a trustee becomes irresponsible or untrustworthy, it may open the door to trust litigation.

A trustee has a fiduciary duty and must account for funds in the trust (i.e. keeping tax returns, books, bank account records, investment records, and expenditures). A trustee cannot spend money on themselves or engage in activities or investments that a prudent businessperson would not.

Trustees must also look out for the best interest of beneficiaries and in a reasonably conservative way for investments so there are no challenges to a trustee if something goes bad or breaches the business judgement rule. If a trustee mismanages, self-deals, or does something irresponsible, they could be accused of violating the business judgement rule.

One of the most common scenarios is a dispute between a beneficiary (or beneficiaries) and the trustee. A beneficiary may want their money for any number of reasons, but the trustee is given some discretion to decide if the beneficiary gets it or not. There may even be a clause included in the trust that stipulates the trustee has discretion to make distributions until said beneficiary (or beneficiaries) turns a certain age. This type of stipulation is generally executed as a protection against creditors by waiting until the liability goes away before distributions to beneficiaries begin.

Another trust litigation scenario is that beneficiary B complains that beneficiary A got all the money, which is not what the trust agreement said was supposed to happen (like it should have been an even split) or the trustee used their discretion and then that discretion is questioned.

There are times when the trust assets cannot be managed or disbursed as the grantor intended. Where circumstances don’t align with the language in the trust document, trustees or beneficiaries may have to get what is called a “Declaratory Judgement.”  For example, if an asset such as an apartment complex is in a trust, a trustee may manage it or hire managers, and manage it for ten years. However, if a person comes along and wants to buy the apartment complex, or a government entity is going to put a highway through it and initiates the process of Eminent Domain, then the trustee may end up managing money instead of a property. At this point in time, the trustee may just want to make a distribution. If the trust document does not include instructions for the trustee on how to manage or disburse large sums of cash assets, it may cause problems. Rather than having the trustee make the decision and expose themselves to mismanagement claims or a breach of duty, it may be easier for a trustee to ask a court for a declaratory judgment, tell them the plans to give X amount of money to beneficiaries and X amount of money to creditors and ask the court to approve the decision. Should the beneficiaries complain against one another at this point, the trustee can let them argue about it, but be secure in doing whatever the court advises or orders.

Trusts with oil and gas interests are common in Texas. Great grandparents may put an oil and gas interest in a trust as part of their legacy. If the grandparents owned the land and then passed, the trustee for the grandkids or possibly the grandkids themselves are likely cashing royalty checks. This can create a host of legal issues as well.

In terms of trust litigation, probate courts in Texas have jurisdiction over trusts, so in a lot of counties there will be trust disputes brought into a statutory probate court as opposed to a district, federal, or county court. Probate courts see more of this type of lawsuit, sometimes making them more beneficial than other courts.

Sometimes trustees are bonded and sometimes they are not. Bonded companies will go after a trustee that creates a liability because they have to put up their money. It is important to understand that when you start requiring a bond that the trustee be a trust company or the trust department of the bank, you are adding a lot of expense. However, without it you run the risk of using a trustee that is not sophisticated enough or is so sophisticated that they take advantage of the situation. The takeaway here is to be wise when naming a trustee for your trust.

Why Work with an Attorney in Dealing with Trust Litigation Issues?

Trusts can still be subjected to trust litigation. However, there are several ways attorneys can assist in limiting these issues, such as:

• Enlist their help in wording and formalizing official trust documents. Experienced legal counsel should be able to use key legal phrases that strengthen these contracts.
• Ask them to explain your rights as a beneficiary to you if you are unsure you are getting the money you believe you are due according to the terms of the trust.
• Get legal counsel if you believe the trustee has abandoned his fiduciary duties.
• Sue a trustee that has not carried out their fiduciary duties.

At the end of the day, people are imperfect, so trust litigation can ensue. As such, make sure you have an experienced and successful trust attorney by your side every step of the way.

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Settlement agreements are legally binding contracts used to resolve disputes between parties. Those who seek legal counsel for settlement agreements are typically either about to enter into an agreement, or they have an existing agreement that has been breached and they want recourse.

The first question an attorney will likely ask a client about their dispute is, “What are you settling?” In some cases, it may have to deal with money owed. However, settlement agreements do not always center around money.

If you are facing the development of a settlement agreement or the breach of one, it is critical to know what they are, what matters they concern, if this process applies to you, the advantages of these types of agreements and how attorneys can help.

What Are Settlement Agreements?

Settlement agreements are binding contracts that consist of terms that two or more parties agree upon in written form. To be enforceable, the agreements must include the parties’ signatures and possibly even a notary’s signature and stamp. When done properly and with the help of an attorney, this yields an official document that says the parties have come together to agree on the terms therein and that they will abide by them.

The process for arriving at the need for settlement agreements is fairly simple:

• There is a dispute.
• The parties raise the dispute, possibly in litigation.
• The parties decide if they want to settle the dispute, or proceed to a trial.

When the involved parties must have a resolution, it requires either litigation or settlement. Settlements may include acquiescence by one of the parties, or a compromise by both or all.

 

Do I Need a Settlement Agreement?

Many people often need help discerning if their situation requires a settlement agreement.

In general, to justify a settlement agreement there needs to be either:

1. An active dispute
2. The potential for a dispute that the parties want to resolve before it becomes critical and does serious damage to the business or the persons involved

 

Breached Settlement Agreements

Because settlement agreements are binding contracts, parties may find themselves in a situation in which one or more individuals breaches the contract (i.e. does not take the action or refrain from an action they promised in the agreement). Often, the only recourse for this is litigation.

To prevent any room for misinterpretation of a settlement agreement, it requires that the terms be well-defined and detailed. It should include exactly what needs to be done to solve existing differences and comply with the terms of the settlement agreement. It should also include provisions for what rights a party has if the other party does not abide by their promises in the agreement.

 

The Advantages of Settlement Agreements

A lawsuit may have already been filed relating to the underlying dispute. At this point, the other party might decide they would rather settle outside of court and come up with a mutual agreement to get the court case dismissed.

There is an advantage of making a settlement agreement instead of taking the case to court. When a lawsuit is filed in court, it becomes public information. Decisions that juries and judges make are viewable by the general public.

However, in a settlement agreement, the parties can agree to terms that are not made public, which keeps the terms under wraps and avoids a long, drawn-out litigation process while still coming to a settlement. This is typically the most desirable option.

 

Do Settlement Agreements Require an Attorney?

People tend to look at the positive when it comes to settlement agreements and hope for the best outcome. Unfortunately, it seldom happens this way. It is difficult to imagine all possible scenarios and include language in the agreement which accounts for various outcomes. This means that, theoretically, attorneys are needed to compose and evaluate these documents to ensure the agreement is clear, valid, and enforceable.

When individuals try to develop their own settlement agreements without legal counsel, the outcome is not always the desired one.

It is not uncommon for individuals to decide on a settlement agreement, draft it up, and come together to sign. It may be that suddenly one party decides they do not want to sign. This means there is simply an unenforceable draft of the document, not an actual settlement agreement.

It could be a case where two parties drafted their own agreement, but the agreement did not make good sense due to contradictions or ambiguous language. The interpretation of the document could lead to many issues. Some cases take years to hash out what the parties’ intended. If the agreement regards the sale of real property, the sale could be delayed until the language in the agreement is resolved.

A reputable attorney with years of experience will be able to anticipate what kind of problems there are, discuss them with the parties, and incorporate them into the agreement to prevent contradictions and misinterpretations.

On the flip side, if a settlement agreement has already been made but breached, a lawyer can help clients manage the legal consequences or penalties of that breach. A breach allows the non-breaching party some rights and remedies from a wisely worded settlement.

Attorneys generally have a stronger and more complete knowledge of the statutes that protect their client’s rights. This means that a client might be able to bring a dispute to an attorney, and legal counsel would know that under something like the Texas property code, certain terms apply, and this means their rights are designated as X, Y, and Z.

It is possible to have an amicable settlement agreement. Yet, there are those individuals that no matter what they receive in a settlement, they will turn right around and ask for more tomorrow. The trick to crafting a solid settlement agreement is to make it so that you do not have to give said individual anything tomorrow.

 

To protect yourself and your rights in settlement agreements, enlist the help of a reputable and experienced Houston attorney.