Current Developments in Estate Planning and Business Law: April Review

Apr 17, 2020 10:00:00 AM


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From sweeping federal COVID-19 relief legislation to state emergency orders, we have recently seen some significant developments in estate planning and business law. To ensure that you stay abreast of these legal changes, we’ve highlighted a few noteworthy developments and analyzed how they may impact your estate planning and business law practice.

Three New Federal Laws Enacted in Response to COVID-19

H.R. 6074, Coronavirus Preparedness and Response Supplemental Appropriations Act 2020

In addition to providing funding for federal agencies aimed at ensuring that coronavirus vaccines are affordable and mandating that Medicare recipients should be able to consult with health care providers by telephone if they wish, the initial coronavirus response law, enacted March 6, 2020, included provisions enabling small businesses to obtain Small Business Association (SBA) Section 7(b) Economic Injury Disaster Loans (EIDLs) to help them weather financial hardship caused by the spread of COVID-19. Under the new law, the SBA, upon a request from a state’s governor, may issue an EIDL declaration allowing the SBA to make loans available to small businesses in designated areas—currently every U.S. state, the District of Columbia, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands. Unlike most disaster loans, these loans do not require applicants to have suffered physical damage to their businesses.

These EIDLs provide up to $2 million to help small businesses with fewer than 500 employees pay fixed debts, payroll, accounts payable, and other operating expenses. Businesses are eligible for EIDLs if they have suffered an economic injury as a result of COVID-19, provided they were able to meet their financial obligations prior to COVID-19.

Small businesses can apply for the loans on the SBA website. The application requires supporting documentation, such as the business’s most recent tax returns, personal financial statement, and a schedule of liabilities listing all current debts. Loan processing takes approximately 30 days. The SBA Disaster Assistance Customer Service Center is available to help with applications and can be reached at 1-800-659-2955.

H.R. 6201, Families First Coronavirus Response Act 

On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was passed. The Act includes two important new laws for employees of companies with fewer than 500 employees, intended to provide relief as most people’s lives have been impacted in some way by COVID-19: (1) the Emergency Family and Medical Leave Expansion Act (EFMLEA); and (2) the Emergency Paid Sick Leave Act (EPSLA). FFCRA also offers tax credits and exemptions designed to protect the viability of businesses during a time of economic stress.

Emergency Family and Medical Leave Expansion Act (EFMLEA)

EFMLEA temporarily expands the scope of the Family and Medical Leave Act (FMLA) of 1993, eliminating exclusions found in FMLA for companies with fewer than 50 employees within a 75-mile radius. It allows eligible employees (those who have been employed for at least 30 calendar days) to apply for extended paid leave (although the first 10 days are unpaid) if, as a result of a public health emergency (i.e., COVID-19), they are unable to work (or telework) due to a need to care for a son or daughter under 18 years of age if a school or childcare provider has been closed or is unavailable due to a public health emergency.

Emergency Paid Sick Leave Act (EPSLA)

EPSLA applies to employees who are unable to work (or telework) as a result of specific circumstances involving their own quarantine, illness, or the need to care for another due to COVID-19. Eligible full-time employees are entitled to 80 hours of paid sick leave, and eligible part-time employees are entitled to paid sick leave equal to the average number of hours worked over a two-week period. Employees entitled to sick days under the EPSLA can use these sick days before using accrued PTO.

FFCRA is not applicable to employers with fewer than 50 employees if the leave requirements would jeopardize the viability of the business as a going concern. The Department of Labor has issued guidance to assist businesses in determining whether they qualify for an exemption and addressing other frequently asked questions regarding the FFCRA.

Employers receive 100% reimbursement for paid leave pursuant to the FFCRA. An immediate dollar-for-dollar tax offset against payroll taxes will be provided, and where the payroll taxes are insufficient to cover the employer’s costs for paid leave, the IRS will provide a refund of those amounts as soon as possible

H.R. 758 (11), Coronavirus Aid, Relief, and Economic Security (CARES) Act 

On March 27, 2020, President Trump signed the CARES Act into law, which provides $2 trillion in stimulus money for a variety of programs aimed at helping the economy weather the COVID-19 crisis.

Forgivable Paycheck Protection Program

Small businesses and certain other organizations with fewer than 500 employees (with some exceptions for certain industries), including sole proprietors, independent contractors, and self-employed individuals, are eligible for loans of up to $100,000 per employee in an aggregate amount not to exceed 2.5 times the employer’s average monthly payroll, or $10 million. The loans are potentially 100% forgivable if the proceeds are used primarily for payroll costs, although some of the proceeds may be used for interest on mortgage obligations; rent; utilities; and interest on other outstanding debt. If businesses that obtain the loan terminated employees or reduced their wages or salaries in the period between February 15, 2020 and June 30, 2020, the amount of forgiveness is reduced proportionally by (i) any reduction in employees retained compared to previous levels, and (ii) the decrease in the pay of any employee beyond 25% of their previous compensation. However, if the business rehires the same number of employees or increases their salaries to the previous level by June 30, 2020, those reductions will not trigger a decrease in the amount of forgiveness. Guidance has been provided in the SBA’s Interim Final Rule and the Frequently Asked Questions.

EIDL Grants

A new grant program is designed to provide quick relief for those applying for SBA EIDL loans, enabling applicants to obtain up to $10,000 for immediate payroll, paid leave, mortgage, rent, and increased costs due to supply chain disruption. The grant amount does not need to be repaid.

SBA Express Bridge Loans

Small businesses that already have a relationship with an SBA Express Lender can quickly obtain funds of up to $25,000 to help cover the time during the time period while they are waiting for a decision and disbursement on an EIDL. The SBA has provided a program guide for interested borrowers.

Small Business Debt Relief

For small businesses that currently have non-disaster SBA loans (7(a), 504, and microloans) or that take out such a loan within six months of the enactment of the CARES Act, the SBA will cover all loan payments, including principal, interest, and fees, for six months. PPP loans are not eligible for this relief, however.

For those that currently have SBA-serviced Disaster (home and business) loans, the SBA is providing automatic deferments through December 31, 2020.

Tax Relief for Businesses

There are a number of tax-related provisions in the CARES Act, but the following are the most interesting for small businesses.

Payroll Tax Deferral. Businesses can defer payment of their share of the Social Security tax on wages paid from March 27 through December 31, 2020, with half of the deferred payment due on December 31, 2020 and the remaining amount due on December 31, 2022. Those who are self-employed can defer 50% of their self-employment tax. However, this relief is not available to those who receive a PPP loan that is ultimately forgiven.

Payroll Tax Credit. Businesses that are required to close or reduce hours because of a governmental order or whose gross receipts have declined by more than 50% compared to the same quarter in 2019, but retain and continue to pay employees, are entitled to a payroll tax credit on qualified wages of up to $5,000 per paid employee to offset their 6.2% share of Social Security taxes, and the excess is refundable. If a business has more than 100 full-time employees, qualified wages are those paid to employees who are not providing services. For businesses with 100 or fewer employees, all wages are eligible for the credit. The credit applies to qualified wages paid during the period from March 13 through December 31, 2020. This relief is not available to those who receive a PPP loan.

Net Operating Loss (NOL) Carrybacks Allowed. Disadvantageous provisions regarding NOLs in the 2017 Tax Cuts and Jobs Act (TCJA) have been temporarily eliminated, permitting NOLS in 2018, 2019, and 2020 to be carried back up to five years and removing the 80% per year taxable income limit for utilizing NOL deductions.

Cap on Business Loss Deduction Removed. Under the TCJA, trade or business losses exceeding $500,000 for couples and $250,000 for others were not deductible. However, this provision has been temporarily suspended for 2018 through 2020.

Enhanced Unemployment Benefits

Federal Pandemic Unemployment Compensation. Individuals who are eligible for unemployment benefits under existing law are entitled to an additional $600 per week above and beyond the regular unemployment compensation provided by their state between April 5, 2020 and July 31, 2020.

Pandemic Emergency Unemployment Compensation. The federal government will fund the cost of benefits for states that waive the one-week waiting period and will pay benefits for up to 13 weeks after the state benefits are exhausted. To encourage states to implement short-time compensation instead of terminating employees, the federal government will fund 100% of the costs for states that currently have those programs and 50% for states implementing such programs by December 31, 2020. States must offer flexibility regarding the requirement for employees to actively seek work where COVID-19 impacts and constraints exist.

Pandemic Unemployment Assistance. Unemployment benefits are available for those who typically are not eligible, e.g., self-employed, part-time, and gig economy workers, have already exhausted unemployment benefits, and are unemployed due for specified COVID-19-related reasons. This program provides a maximum of 39 weeks of assistance (many states limit regular benefits to 26 weeks) and applies retroactively from January 27 through December 31, 2020.

Retirement Benefits

Individuals who have been diagnosed with COVID-19, or whose spouse or dependent has been diagnosed with COVID-19, and individuals who have suffered certain adverse financial consequences due to COVID-19 can take distributions of up to $100,000 from their IRA, 401(k), or other retirement plan from January 1, 2020 to December 31, 2020 without the usual 10% penalty for early withdrawals before age 59 ½. Although withdrawals are still subject to taxation, a qualifying individual can spread the tax payments evenly over three years rather than pay the full amount in the year of distribution. In addition, the distributed amount can be recontributed over the next three years. Also, for qualified individuals, plan loan limits have been increased to the lesser of $100,000 or 100% of the participant’s vested account balance. For participants with outstanding loans, the CARES Act allows repayments due through December 31, 2020 to be deferred for one year. In addition, the CARES Act waives required minimum distributions from IRAs and certain other retirement plans for 2020 for retirees as well as designated beneficiaries who have inherited retirement accounts.

Please view the webinar COVID Relief and Accessing IRAs, 401(k)s and Using Self-Directed IRAs and the accompanying course materials for a discussion of how to benefit from your retirement account funds under the CARES Act.

Student Loans

The CARES Act has suspended all federal (not private) student loan payments and interest through September 30, 2020 with no action required by borrowers. In addition, borrowers who made payments toward federally-held student loans subsequent to March 13 can request a refund of the payment amount from the student loan servicer.

In addition, employers may provide a student loan repayment benefit or other educational assistance currently provided by the employer to employees of up to $5250 annually, tax-free, starting March 27, 2020 and before January 1, 2021.

Recovery Rebates for Individuals

The CARES Act provides rebates of up to $1,200 for individuals with adjusted gross income of up to $75,000 and $2,400 for those who file jointly with an adjusted gross income of up to $150,000, plus an additional $500 for each dependent child. The rebate is phased out, with a $50 reduction in the amount of the rebate for every $1,000 of adjusted gross income above the thresholds mentioned above.

Proposed Phase Four Coronavirus Response Bill

Secretary of the Treasury, Steve Mnuchin, has already asked Congress to appropriate an additional $250 billion toward the Payroll Protection Program, which had already processed $70 billion in federally backed loans for more than 200,000 small businesses within the first several days.

Takeaways: Small businesses should look beyond the federal programs, as many states and private organizations are also offering COVID-19 relief in the form of loans and grants.


Tax Filing and Payment Deadlines Extended

I.R.S. Notices 2020-18, 2020-20, 2020-23

Pursuant to IRS Notice 2020-18, the due dates for filing and payment of federal income taxes has been postponed from April 15, 2020 to July 15, 2020 for individuals, trusts, estates, partnerships, associations, companies, or corporations. In addition, Notice 2020-20 postpones the due date for filing Forms 709 to July 15, 2020 and allows individuals who owe federal gift or generation-skipping transfer tax on April 15 to postpone payment to July 15 with no interest or penalty. Notice 2020-23 grants additional broad tax filing and payment deadline relief for all taxpayers with a filing or payment deadline on or April 1, 2020 and before July 15, 2020, including individuals, trusts, estates, corporations, and other non-corporate tax filers, free of interest, penalties, or addition to tax for failure to file.  

Many states have also extended the deadlines for filing and/or payment of state taxes.

Takeaways: Although federal tax deadlines have been broadly extended, state relief varies, so check your state to verify the applicable deadlines.


Federal Interest Rates Reduced

On March 15, 2020, the Federal Reserve announced that interest rates would be reduced to between zero and 0.25 percent, and that it would spend a minimum of $700 billion on government and mortgage-related bonds.

Takeaways: Estate planning attorneys can assist interested clients with several estate planning strategies that are advantageous in a low interest rate environment, e.g., intrafamily loans, installment sales to intentionally defective grantor trusts, and grantor retained annuity trusts.


States Implement Emergency Measures in Response to COVID-19

Many states that had not previously enacted remote online notarization statutes have put emergency measures in place allowing remote online notarization, and a few states, e.g., Kansas, Michigan, New York, and Indiana, have temporarily authorized remote witnessing of estate planning documents.

Takeaways: Stay tuned for additional emergency action by states in response to the COVID-19 crisis. In addition, a bill has been introduced in the United States Senate, the Securing and Enabling Commerce Using Remote and Electronic Notarization (SECURE) Act of 2020, to authorize and establish minimum standards for electronic and remote notarizations that would affect interstate commerce. As currently worded, it would authorize notaries in the United States to perform online notarizations using audio-visual communications and tamper-evident technology in connection with interest transactions.


Supreme Court of Alabama Reviews Who Is a “Qualified Beneficiary” under the UTC

Wallace v. Fant, No. 1180484, 2020 WL 1071327 (Ala. March 6, 2020)

Alfred and Hetty Jean Fant established the Fant Family Trust, naming their children, Alfred and Wallace, as the ultimate, but remotely contingent, beneficiaries. When Alfred died, the estate was split into two trusts, one of which was a revocable trust designated as the Survivor’s Trust. Wallace sought a declaration of her rights with respect to an accounting of the Survivor’s Trust, alleging that Hetty Jean and her cotrustee had terminated the Survivor’s Trust without Wallace’s consent, distributing the trust assets and denying her an accounting of those assets under Ala. Code 19-3B-813(A(2), Alabama’s version of the Uniform Trust Code. That section requires a trustee to promptly respond to a “qualified beneficiary’s” request for information related to the administration of the trust.

The Alabama Supreme Court upheld the lower court’s ruling that because the Survivor’s Trust was revocable, Wallace had no legally protected right in the trust, and that Hetty Jean, as the grantor, sole beneficiary, and cotrustee of the trust, had no duty to account to anyone, including Wallace, regarding the trust. Hetty Jean had total control over the distribution of the trust assets during her lifetime and owed no fiduciary duty to account to Wallace. Wallace had only a remote and contingent interest in the trust assets that did not provide her with the status to demand an accounting of the trust during Hetty Jean’s lifetime.

Takeaways: Under the Uniform Trust Code, those with only a remote, contingent interest in a revocable trust’s assets do not have a vested right to any of the trust assets. As a result, they do not fall within the definition of a “qualified beneficiary” entitled to an accounting while a person who is a grantor, sole beneficiary, and co-trustee of the trust is still living and has total control over the trust assets during his or her lifetime.


California Court of Appeals Finds Settlement Agreement Violates Principles of Trust Law and Trust Instrument

Gres v. Gres, No. B295772, 2020 WL 1058923 (Cal. Ct. App. March 5, 2020) (not published in official reports)

Four siblings were the beneficiaries and co-trustees of a multi-million dollar irrevocable trust. Two of the siblings, Jerry and Eva, petitioned the probate court for an order removing their brothers, Barry and Hillel, as trustees and for reimbursement of funds they allegedly misappropriated from the trust. Eva entered into a settlement agreement with Barry and Hillel in which she was to receive money and property out of the trust in exchange for her release of her claims against Barry and Hillel for misappropriation of the trust funds and which stated that attorneys’ fees and costs were to paid from the residual assets of the trust. The probate court entered an order approving the settlement, but Jerry appealed from the order asserting that the settlement improperly uses trust funds to pay for Hillel and Barry’s alleged misappropriation and benefited Eva to his detriment.

The California Court of Appeals reversed the probate court’s order approving the settlement, finding that the settlement agreement was not in the best interests of the trust because it depleted the trust in favor of one beneficiary and used trust assets to settle Hillel and Barry’s potential liability for misappropriation of the trust funds. Further, the court held that the settlement agreement violated the terms of the trust instrument, which gave the trustee alone the power to make distributions and specified how the trust assets should be distributed. As Hillel and Barry were no longer co-trustees, they had no power to make distributions from the trust. Even if they had still been trustees, they could not have altered the gifts expressly set forth in the trust instrument: The distribution to Eva pursuant the settlement out of the residue of the trust, which the trust instrument specified was to go to Barry and Jerry, was contrary to the terms of the trust agreement. In addition, the trust’s terms specified that the trustee had the duty to treat all of the trust’s beneficiaries fairly and equitably. The settlement agreement violated this duty of neutrality spelled out in the trust instrument, as well as that required by trust law, by depleting the trust assets in favor of Eva. Further, it was improper to pay attorneys’ fees out of the trust because Hillel and Barry were accused of mismanagement of trust assets and their efforts to defend themselves of the accusations of misappropriation were for their own benefit, not the benefit of the trust.

Takeaways: Where a settlement agreement purports to give one beneficiary trust property not designated for her in the trust and depletes the trust, benefiting one beneficiary over another, it is in violation of the principles of trust law as well as the terms of the trust agreement. 


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