Current Developments in Estate Planning and Business Law: January 2023

Jan 13, 2023 10:00:00 AM


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From the enactment of the SECURE 2.0 Act to the issuance of a proposed rule on access to beneficial ownership information under the Corporate Transparency Act, we have recently seen significant developments in estate planning and business law. To ensure that you stay abreast of these legal changes, we have highlighted some noteworthy developments and analyzed how they may impact your estate planning and business law practice.

SECURE 2.0 Act Passed as Part of Omnibus Appropriations Bill

Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022)

On December 29, 2022, President Biden signed H.R. 2617, the Consolidated Appropriations Act, 2023, into law, which includes the SECURE 2.0 Act of 2022. SECURE 2.0 requires employers with existing defined contribution plans to automatically enroll new employees and includes many other retirement plan provisions, including some that may impact estate planning decisions.

  • Section 107 increases the age for the required beginning date (RBD) for required minimum distributions (RMDs) from retirement plans from seventy-two to seventy-three beginning January 1, 2023, for individuals who reach age seventy-two after December 31, 2022. The RBD will be increased to age seventy-five beginning January 1, 2033, for individuals who reach age seventy-four after December 31, 2032. The original SECURE Act, passed in late 2019, increased the age at which individuals must start taking RMDs from seventy and a half to seventy-two starting in 2020.
  • Section 327 allows a surviving spouse to elect (irrevocably, except with the consent of the Secretary of the Treasury) to be treated as the deceased spouse’s employee for purposes of the RMD rules, effective for calendar years after December 31, 2023. Prior to the passage of SECURE 2.0, a surviving spouse who inherited their deceased spouse’s retirement account was permitted to roll their deceased spouse’s individual retirement account (IRA) into their own IRA, elect to treat the deceased spouse’s IRA as their own, or remain a beneficiary of their deceased spouse’s IRA. Section 327 also allows the surviving spouse to delay taking RMDs until the deceased spouse would have reached the age at which RMDs were required. RMDs can be calculated using the Uniform Lifetime Table applicable for account owners instead of the Single Lifetime Table applicable to beneficiaries. In addition, if the surviving spouse dies before the beginning of RMDs from the retirement account, the surviving spouse’s beneficiaries will be deemed to be the original beneficiaries of the account, allowing eligible designated beneficiaries under the original SECURE Act to stretch distributions over their lifetime instead of following the ten-year rule.

Takeaways: Clients who reached age seventy in 2022 or earlier must continue taking RMDs as scheduled. Those who will reach 72 in 2023 or later will have more flexibility and be subject to a later RBD. This allows for longer periods of tax-deferred growth of retirement accounts. Clients who will be benefitted by these changes will appreciate knowing about them, as these changes may impact their retirement planning, financial planning, and estate planning decisions. In addition, surviving spouses whose deceased spouses were younger than them should consider whether to elect to be treated as the deceased employee for the purposes of the RMD rules to delay the date at which RMDs must begin.

Learn more about this topic by joining us for our next complimentary Thought Leader Series webinar on February 2, when presenter Robert S. Keebler, CPA/PFS, MST, DAEP, CGMA, will cover the SECURE Act, the Proposed Regulations, and SECURE 2.0.

President Biden Signs Respect for Marriage Act

Pub. L. No. 117-228, 136 Stat. 2305 (Dec. 13, 2022)

On December 13, 2022, President Biden signed the Respect for Marriage Act (the Act), which states: 

For the purposes of any Federal law, rule, or regulation in which marital status is a factor, an individual shall be considered married if that individual’s marriage is between 2 individuals and is valid in the State where the marriage was entered into or, in the case of a marriage entered into outside any State, if the marriage is between 2 individuals and is valid in the place where entered into and the marriage could have been entered into in a State.

The statute provides that no person acting under color of state law may deny full faith and credit to the laws or proceedings of another state or rights or claims arising from marriages between two individuals on the basis of the sex, race, ethnicity, or national origin of the individuals. The Attorney General may bring a civil action against anyone who violates the Act, and a person harmed by a violation may bring a civil action against the person who violated the Act seeking declaratory and injunctive relief. In addition, the Act provides that no religious or conscience protection otherwise available to an individual or organization under the Constitution or federal law will be diminished or abrogated. 

The Act maintains current law by (1) repealing the Defense of Marriage Act, which was enacted during the Clinton Administration but was found unconstitutional in United States v. Windsor, 570 U.S. 744 (2013) to the extent that it limited federal recognition of marriage to opposite sex couples; (2) codifying the Supreme Court’s ruling in Obergefell v. Hodges, 576 U.S. 644 (2015), that all states must allow same-sex couples to marry and recognize same-sex marriages lawfully performed in other jurisdictions; and (3) codifying the Supreme Court’s ruling in Loving v. Virginia, 388 U.S. 1 (1967), that laws prohibiting interracial marriages are unconstitutional. 

Takeaways: Estate planning attorneys and their clients have expressed concern that Obergefell or Loving could be overturned and that marital statuses and estate plans could be negatively impacted. The enactment of the Respect for Marriage Act will ensure that all legal marriages continue to be recognized.

Florida Court Holds that Nonowner Spouse’s Abandonment of Homestead Is Not a Waiver of Constitutional Joinder Requirement

Isaacs v. Fed. Nat’l Mortg. Ass’n, 2022 WL 17660325 (DCA Fla. 3rd Dec. 14, 2022)

Albert Isaacs and his wife, Rachel, were married in 1966. In 1974, they purchased a home titled in both their names as husband and wife. Albert and Rachel separated (but did not divorce) in the 1980s, and Albert moved out of the home. Despite the separation, Albert continued to support his wife financially and provide for the home’s maintenance. Albert purchased another home in his own name in 1999, which is his permanent residence. He declared the homestead tax exemption on his new home. In addition, he executed a quitclaim deed transferring his interest in the original home to Rachel, and it was recorded. Rachel obtained a mortgage of $89,000 on the original home, and although the mortgage appeared to be signed by Albert, he denied that the signature was authentic. When Rachel and the couple’s adult sons, who lived at the original home, passed away in 2016, the probate court determined that the original home was Rachel’s homestead and it belonged to Albert, who was her surviving spouse. 

After the mortgage went into default, Fannie Mae filed a foreclosure action against Albert and against Rachel’s estate. Albert asserted that his signature had been forged as an affirmative defense, and Fannie Mae sought a partial summary judgment on the basis that the joinder requirement established in article X, section 4(c) of the Florida Constitution (“[t]he owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage, sale or gift”) was not applicable because it had been waived by Albert when he abandoned the original home. Albert opposed the motion, asserting that the Florida Constitution required his joinder to the mortgage as long as the original home remained Rachel’s homestead when the mortgage was executed, regardless of whether he had abandoned the original home. The trial court granted Fannie Mae’s motion for summary judgment on that issue, and ultimately issued a judgment of foreclosure in Fannie Mae’s favor.

Albert appealed on the basis that the Florida Constitution required his joinder to the mortgage even if he had abandoned the original home if it remained Rachel’s homestead when she obtained the mortgage. The Florida District Court of Appeals agreed, noting that Florida courts have consistently held that article X, section 4(c) prohibited a married owner of a homestead from alienating it to a third party in the absence of their spouse’s consent. Further, a 1985 revision to the definition of homestead in article X, section 4(c)(a) included any property owned by a natural person constituting the residence of the owner or the owner’s family. Consequently, the clear and unambiguous language of section 4, if read in its entirety, required Rachel to obtain Albert’s joinder to the mortgage because she was a married owner of property that was a homestead within the meaning of section 4(c).

In considering whether a nonowner spouse’s abandonment of the homestead could act as a waiver of the constitutional joinder requirement with regard to the restraint on alienation, the court found that it was bound by prior case law: for example, In Re Scholtz, 543 So. 2d 219 (Fla. 1989) held that a decedent’s homestead was subject to restrictions against devise regardless of whether his surviving spouse lived at the homestead at his death. The court saw “no reason why Scholtz should not be equally applicable to cases involving the restraint on alienation, as there similarly is nothing in section 4 expressly conditioning the spousal joinder requirement on a non-owner spouse's residing at the homestead property at the time of the conveyance.” Consequently, the court reversed the final judgment of foreclosure and remanded the case for further proceedings consistent with its opinion.

Takeaways: State homestead statutes vary, but it is important to be cognizant of their potential impact on clients’ real property. Florida estate planners should keep in mind that pursuant to Isaacs, spouses may have multiple homestead properties, and both spouses’ signatures are required for alienation of the homestead property.

California Anti-Isolation Protective Order Bill Effective January 1, 2023

Protective orders: elder and dependent adults, Assemb. B. 1243, 2021-2022 Reg. Sess. (Calif. 2021)

California’s legislature found that the isolation of vulnerable elder (age sixty-five and older) and dependent (age eighteen to sixty-four with physical or mental limitations) adults resulting from stay-at-home orders during the COVID-19 pandemic created opportunities for perpetrators of abuse to prevent vulnerable adults’ friends and family members from visiting them and overseeing their finances. California AB 1243 amends the California Welfare and Institutions Code to authorize elder or dependent adults, those who are legally authorized to seek relief (i.e., the elder or dependent adult’s conservator, trustee, attorney-in-fact, guardian ad litem, or other interested party) on the elder or dependent adults’ behalf, or a county adult protective services agency to obtain an anti-isolation restraining order.  “Interested party” is defined broadly as “an individual with a personal, preexisting relationship with the elder or dependent adult.” Cal. Welf. & Inst. Code 15657.03(b)(3) The preexisting relationship “may be shown by a description of past involvement with the elder or dependent adult, time spent together, and any other proof that the individual spent time with the elder or dependent adult.” Cal. Welf. & Inst. Code 15657.03(b)(3).

To issue the anti-isolation protective order, a judge must find the following: 

(I) The respondent’s past act or acts of isolation of the elder or dependent adult repeatedly prevented contact with the interested party.

(II) The elder or dependent adult expressly desires contact with the interested party. A court shall use all means at its disposal to determine whether the elder or dependent adult desires contact with the person and has the capacity to consent to that contact.

(III) The respondent’s isolation of the elder or dependent adult from the interested party was not in response to an actual or threatened abuse of the elder or dependent adult by the interested party or the elder or dependent adult’s desire not to have contact with the interested party.

Cal. Welf. & Inst. Code 15657.03.(b)(5)(E). The protective orders are not available for vulnerable adults who live in a health, residential, or long-term care facility as defined in California’s Health and Safety Code.

AB 1243 also permits the court to find, after notice and a hearing, that specific debts were incurred as the result of financial abuse of a vulnerable adult. The finding would not entitle the petitioner to damages or relief other than that provided for in AB 1243.

Takeaways: Typically, only legally appointed representatives have been authorized to act on behalf of vulnerable adults. Under AB 1243, any “interested party” (which could include family members, friends, and acquaintances of a vulnerable adult) who provides a sufficient showing that someone is isolating the vulnerable adult from others against their will and to their detriment can step in to seek their protection.

Treasury Issues Proposed Rule on Access to Beneficial Ownership Information Required by Corporate Transparency Act

Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77404 (proposed Dec. 16, 2022)

On December 16, 2022, the US Department of the Treasury issued a proposed rule addressing which governmental and other entities will be allowed to access beneficial ownership information (BOI). BOI includes identifying information associated with reporting companies, their beneficial owners, and company applicants, which millions of small businesses will be required to disclose to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) starting January 1, 2024, under the Corporate Transparency Act (CTA). In addition, the proposed rule describes safeguards and penalties aimed at preventing the unauthorized use of the information.

The goals of the proposed rules are to ensure that beneficial ownership information is only accessible to authorized recipients, used for purposes authorized by the CTA, and redisclosure of the information balances the security and protection of the information with the CTA’s objective of making it available to certain users for the purposes specified in the CTA. The proposed regulations also would provide for strict cyber security control, confidentiality protections, and audit and oversight measures. 

There are several categories of authorized users:

  • Domestic government agency users for nonsupervisory purposes. The rule categories these users into three types: 
  • Federal agencies engaged in national security, intelligence, and law enforcement activities. They will be permitted to query the database directly and regularly and must submit justifications to FinCEN explaining how their search furthers a qualifying activity.
  • Treasury officers and employees performing their official duties or tax administration (as defined in the Internal Revenue Code). Internal policies and procedures will be established aimed at ensuring that the information is disclosed only to Treasury officers or employees with official duties requiring access to it, or for tax administration. 
  • State, local, and tribal law enforcement agencies. They will be required to upload a document issued by a court authorizing them to seek the information.
  • Authorized foreign requesters. Foreign law enforcement agencies, judges, prosecutors, and similar requesters must submit their requests to domestic federal intermediary agencies that already have regular engagement and familiarity with them. They will not have direct access to the database. Their requests may only be pursuant to an international treaty or similar agreement or pursuant to an official request for assistance from a “trusted” foreign country. FinCEN will exercise oversight and audits to ensure compliance with security requirements and mitigate the risk of abuse by foreign requesters.
  • Financial institutions and their regulators. Financial institutions and their regulators with customer due diligence (CDD) requirements under applicable law will have direct access to the information in the database to the extent necessary to facilitate their CDD compliance. They must obtain the consent of the reporting company to request its information from FinCEN.

Those who receive Information disclosed by FinCEN under the proposed regulation would be “authorized to use it only for the particular purpose or activity for which it was disclosed.” (87 Fed. Reg. 77417). Authorized recipients of information would be permitted to redisclose it only in limited circumstances that would further the core underlying national security, intelligence, and law enforcement objectives of the CTA and would be subject to protocols designed to protect the security and confidentiality. 

Requesting agencies will be required to maintain a secure system to store the information, furnish reports describing their security procedures, limit the scope of the information sought as much as practicable, and establish and maintain a system of standardized records of requests. Foreign requesters must handle, disclose, and use the information consistent with the treaty or other agreement under which it was requested; if no treaty or other agreement applies, a foreign requester must maintain a secure storage system that complies with those security standards it applies to the most sensitive unclassified information it handles, minimize the amount of information requested, and restrict personnel access to it. Financial institutions will satisfy security requirements if they comply with section 501 of the Gramm-Leach-Bliley Act and regulations issued under it to protect non-public customer personal information.

Takeaways: Although the agencies and institutions that may access beneficial ownership information are described in broad categories and are not specifically identified by the proposed rule, the rule sets forth strict security measures that must be taken to ensure that the information is not misused or improperly disclosed. FinCEN proposes an effective date for the proposed rule of January 1, 2024, which coincides with the date that the final beneficial reporting rule will become effective. Written comments must be submitted by February 14, 2023.

President Biden Signs Speak Out Act, Making Predispute Nondisclosure and Nondisparagement Agreements Unenforceable for Disputes Involving Sexual Assault or Harassment

Pub L. 117-224, 136 Stat. 2290 (2022)

On December 7, 2022, President Biden signed the Speak Out Act (the Act), which prohibits the enforcement of nondisclosure and nondisparagement clauses in any predispute agreement that would prohibit a victim of sexual assault or harassment (as defined in the Act) from discussing the assault or harassment or making a negative statement about another individual related to “the contract, agreement, claim, or case.” It does not prohibit the enforcement of similar clauses in agreements to settle claims involving sexual assault or harassment. The Act applies broadly to “employers and current, former, and prospective employees, and independent contractors, and between providers of goods and services and consumers.”

The Act specifically states that it does not apply to agreements executed by an employer and employee to protect trade or proprietary information.

Takeaways: The Act does not make agreements containing such provisions void or impose any penalties for their inclusion in an agreement. Nevertheless, employers should consider reviewing their policies, employment contracts, and handbooks, and making any modifications necessary to comply with the Speak Out Act. Further, some states have enacted their own statutes addressing nondisclosure and nondisparagement agreements and clauses, so it is important to become familiar with applicable state law.

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