In the past month, we have seen significant developments in estate planning, business law, elder law, and special needs law. We have highlighted the most noteworthy developments to ensure you and your firm stay informed of any changes. From the Internal Revenue Service’s release of 2026 transfer tax exemption amounts and proposed rule regarding the tax deduction for qualified tips, to a ruling that a special needs trust is a countable resource, read on to learn how these decisions may impact your practice.

Estate Planning

IRS Releases 2026 Exemption and Exclusion Amounts

Rev. Proc. 2025-32 (Oct. 9, 2025)

On October 9, 2025, the Internal Revenue Service (IRS) issued Revenue Procedure 2025-32, providing the annual inflation adjustment amounts for tax provisions to be used by individual taxpayers for the 2026 calendar year. The adjustments include the following:

• The estate, gift, and generation-skipping transfer tax exemptions for 2026 are $15 million, reflecting the increased exemption amount under the One Big Beautiful Bill Act; this is an increase from $13,990,000 for transfers in 2025.
• The annual exclusion for gifts remains $19,000 for calendar year 2026.
• For 2026, the first $194,000 of gifts (other than gifts of future interests in property) to a spouse who is not a citizen of the United States are not included in the total amount of taxable gifts made during that year, an increase from $190,000 for 2025.

Takeaways: The increase in the basic exclusion amount means that an individual will be able to transfer $1,010,000 more free of transfer tax liability in 2026 than they could in 2025. Estate planning attorneys should work with clients to determine if they should take advantage of the planning opportunities provided by these increases. Attorneys with high-net-worth clients will need to advise them regarding tax minimization strategies. Some attorneys may want to encourage clients to use strategies designed to take advantage of the higher exemption amount sooner rather than later, in case a future Congress repeals the new tax law. The $19,000 annual exclusion amount for gifts remains unchanged for the first time since 2021, following increases in 2022, 2023, 2024, and 2025.

Effective Date of Residential Real Estate Rule Postponed Until March 1, 2026

Dep’t of the Treasury, Exemptive Relief Order to Delay the Effective Date of the Residential Real Estate Rule (Sept. 30, 2025)

On August 29, 2024, the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury issued a final rule entitled “Anti-Money Laundering Regulations for Residential Real Estate Transfers,” imposing new nationwide reporting requirements on nonfinanced transfers of residential real estate (defined to include single-family homes, townhouses, condominiums, cooperatives, and apartment buildings for one to four families) to a transferee entity or a transferee trust in the United States. 

The effective date for the rule was originally December 1, 2025. However, on September 30, 2025, the Secretary of the Treasury, through FinCEN, released an order exempting persons covered by the final rule from complying with its requirements until March 1, 2026. The reason for the delay is to reduce unnecessary regulatory burden and allow reporting persons sufficient time to comply with the final rule’s requirements.

Under the final rule, a reporting person, which includes certain individuals involved in real estate closings and settlements such as settlement agents, title insurance agents, escrow agents, and attorneys, must file a Real Estate Report (Report) with FinCEN within 30 days of the closing date.

A transferee entity includes any legal entity other than a transferee trust or individual, and according to FinCEN’s FAQ B.6, may be a corporation, partnership, estate, association, or limited liability company. A transferee trust may include “any legal arrangement created when a person (generally known as a grantor or settlor) places assets under the control of a trustee for the benefit of one or more persons (each generally known as a beneficiary) or for a specified purpose” and similar arrangements. 

Some transfers are exempt from the reporting requirements, including transfers to individuals and those resulting from the death of the owner of residential real estate. The final rule clarifies that the exception for transfers resulting from death includes all transfers “whether pursuant to the terms of a will or a trust, by operation of law, or by contractual provision.” In addition, the final rule adds an exception for transfers of residential real property to a trust that meet all of the following criteria:

• The transfer is for no consideration 
• The transferor of the property is an individual (either alone or with the individual’s spouse)
• The settlor or grantor of the trust is that same transferor individual, that individual’s spouse, or both

Takeaways: For additional background, see WealthCounsel’s September 2024 monthly update. FinCEN has issued a Residential Real Estate Frequently Asked Questions and a Fact Sheet with more information about the final rule. Real Estate Reports may be filed for free using FinCEN’s BSA e-filing system. FinCEN has indicated that additional guidance will be provided regarding the rule. Commentators have noted some ambiguities, for example, whether an attorney who transfers real estate to a single-member LLC for estate planning purposes is subject to the reporting requirements.

Elder Law and Special Needs Law

Plaintiff Denied SSI Because SNT Providing for Payment of Other Obligations Before State Reimbursement Was Countable Resource

Christopher W.G. v. Bisignano, No. 2:24-06826 ADS, 2025 WL 2718990 (C.D. Cal. Sept. 23, 2025)

Christopher W.G. filed a claim for Supplemental Security Income (SSI) benefits, which the Social Security Commissioner denied. Christopher W.G. requested a hearing before an administrative law judge (ALJ), who found that his self-settled special needs trust (SNT) that held $237,307 did not meet the criteria for an excludable resource under 42 U.S.C. § 1396p(d)(4)(A). Because the funds held in the SNT exceeded the $2,000 resource limit for SSI, Christopher was ineligible for SSI benefits. Through his conservators, Christopher filed an action in federal district court, challenging the ALJ’s decision.

The federal district court noted that it must affirm the ALJ’s findings of fact if they were supported by substantial evidence and the proper legal standards were applied. The court rejected Christopher’s contention that the ALJ had erred in determining that the SNT did not meet the criteria for exclusion as a countable resource set forth in 42 U.S.C. § 1396p(d)(4)(A) and failing to read the SNT as a whole. 

The court noted that SSI benefits are needs-based and that, pursuant to 42 U.S.C. § 1396p(d)(4)(A) and the Social Security Administration’s Program Operations Manual System SI 01120.203.B, a self-settled SNT will be exempt from being counted as an individual’s resource only if it provides that the state will be the first payee entitled to receive all amounts remaining in the SNT upon the individual’s death up to the total amount of medical assistance paid on their behalf under a state plan. Christopher’s SNT provided that, at the termination of the trust or his death, the state would be reimbursed for medical assistance from the remaining trust estate after payment of administration expenses and other obligations payable by the SNT. 

The court recognized that trust language allowing administrative expenses, as outlined in SI 01120.203.E.1, to be paid before Medicaid reimbursement would not disqualify the trust. However, the language allowing for the payment of other obligations was vague and permitted the payment of prohibited expenses prior to Medicaid reimbursement. This conclusion was further supported by additional language in the SNT, which allowed the payment of inheritance, estate, and other taxes without specifying that those payments could only be made after the state had been reimbursed for Medicaid benefits paid on Christopher’s behalf. Thus, the court ruled that the ALJ had reasonably concluded that the language of the SNT as a whole did not meet the SNT exception requirements of 42 U.S.C. § 1396p(d)(4)(A). The court affirmed the ALJ’s decision and dismissed the action with prejudice, finding that it was supported by substantial evidence and was not clearly erroneous or contrary to law. 

Takeaways: Drafting a self-settled SNT involves careful planning and a deep understanding of the legal requirements and the beneficiary’s needs. Further, self-settled SNTs should be drafted to ensure that they meet the requirements of 42 U.S.C. § 1396p(d)(4)(A) and SI 01120.203.B to be exempt from being counted as an individual’s resource. In Christopher W.G., the inclusion of the phrase “and other obligations” in the SNT caused Christopher to be ineligible for public benefits he otherwise would have received. WealthCounsel members can view the Special Needs Drafting Intensive for instruction about drafting SNTs in Elder Docx™.

Spendthrift Provision in Trust Did Not Bar Estate Recovery 

In re Estate of Thompson, No. M2024-01564-COA-R3-CV, 2025 WL 2682663 (Tenn. Ct. App. Sept. 19, 2025)

In 2016, Vivian Thompson created a revocable trust containing a spendthrift provision and transferred real property to it using a quitclaim deed. She later received long-term care services for which TennCare, Tennessee’s Medicaid program, paid $231,416.24. After Vivian’s death in 2023, TennCare filed a claim against her estate pursuant to section 71-5-116(c) of the Tennessee Code Annotated seeking reimbursement of that amount. 

The estate filed an exception to TennCare’s claim, arguing that it was barred by spendthrift language in the revocable trust and the statute of limitations set forth in section 35-15-505(g)(1) of the Tennessee Code Annotated, which applied to transfers to spendthrift trusts. In addition, the estate asserted that language in the trust and deed created a life estate in the property that was extinguished at Vivian’s death, preventing TennCare from seizing it. The parties stipulated that the amount TennCare sought was a valid claim against the estate. The trial court denied the estate’s exception, and the estate appealed.

The Tennessee Court of Appeals reviewed the trial court’s conclusions of law de novo. It rejected the estate’s argument that because Vivian’s revocable trust contained a spendthrift provision, it was barred by the limitations period in section 35-15-505(g)(1). The court noted that the comments to that section clarified that it created a limitations period relative to contesting the validity of transfers to spendthrift trusts. In the present case, TennCare did not contest the validity of the 2016 transfer of real property to the revocable trust; to the contrary, the parties had stipulated that TennCare was a creditor with a valid claim. Therefore, TennCare’s reimbursement claim was not barred by the limitations period in section 35-15-505(g)(1).

The court determined that the property held by the revocable trust was instead subject to claims by Vivian’s creditors under section 35-15-505(a)(6) of the Tennessee Code Annotated, which provides that at a settlor’s death, property held by a trust that was revocable immediately preceding the settlor’s death is subject to claims by the settlor’s creditors, whether or not the trust contained a spendthrift provision. Therefore, the real property held in the trust was subject to TennCare’s valid creditor’s claim despite the trust’s spendthrift language.

The court also disagreed with the estate’s contention that language in the trust and the quitclaim deed created a life estate in the real property held by the trust that was extinguished at Vivian’s death. The court determined that the language in the quitclaim deed did not create a life estate because the duration of the interest in the real property that the deed transferred was not measured by anyone’s life. The court further found that because the trust was revocable by Vivian, she could have transferred the property elsewhere during her life.

As a result, the court affirmed the trial court’s judgment and remanded the case for further proceedings consistent with its opinion.

Takeaways: Federal law requires that states, as a condition of all of their Medicaid funding, must administer an estate recovery program to reimburse the federal government for Medicaid funds expended on the recipient’s behalf following their death. Some states restrict recovery to only what is required (limited recovery jurisdictions), but in others, collection is as comprehensive as the law allows (expanded recovery jurisdictions). The court’s decision in In re Estate of Thompson provides a reminder that even in limited recovery jurisdictions such as Tennessee (see Tennessee Code Annotated section 71-5-116(c)), which by statute limit estate recovery to the deceased Medicaid recipient’s probate estate, those rules may be expanded by case law. Attorneys should become familiar with their state’s statutes and case law and encourage clients to plan proactively, for example, by drafting and funding a Medicaid Asset Protection Trust to avoid postdeath estate recovery.

Recipient Clinically Ineligible for Medicaid Nursing Facility Level of Care

R.G. v. Div. of Med. Assistance & Health Serv., No. A-1766-23 (N.J. Super. Ct. Oct. 16, 2025)

In January 2021, New Jersey’s Office of Community Choice Options (OCCO) conducted an assessment of R.G. It determined that she was eligible for Medicaid and required nursing facility level of care. She was admitted to a nursing home. In 2021 and 2022, OCCO did not conduct an annual reassessment of eligibility due to the COVID-19 pandemic; however, during this period, R.G.’s managed care organization determined that she had completed rehabilitation and no longer required nursing facility level of care. In its 2023 reassessment, OCCO notified R.G. that she was ineligible for nursing facility level of care under N.J. Admin. Code § 8:85-2.1. 

R.G. challenged OCCO’s decision. The administrative law judge (ALJ) reversed OCCO’s decision, rejecting a nurse’s assessment on the basis that R.G. did not understand the assessment and the nurse did not speak to R.G.’s physicians. Based on R.G.’s physicians’ testimony, the ALJ determined that R.G. met the clinical criteria for nursing facility level of care. However, the Division of Medical Assistance and Health Services (Division) reversed the ALJ’s decision and upheld OCCO’s determination that R.G. was ineligible for nursing facility level of care. R.G. appealed the Division’s decision.

The New Jersey Superior Court determined that the Division’s determination was supported by sufficient credible evidence in the record and was not arbitrary, capricious, or unreasonable. The court noted that adults on Medicaid must meet both financial and health-related criteria to be eligible for nursing facility care under the Medicaid program. Staff designated by OCCO determine clinical eligibility based on a comprehensive needs assessment demonstrating that the individual needs nursing facility services as set forth in N.J. Admin. Code § 10:166-2.1(a) and N.J. Admin. Code § 10:166-2.2.

The record showed that the nurse who performed the comprehensive needs assessment met with R.G., who told the nurse that she could independently perform all activities of daily living (ADLs). Further, the nurse observed R.G. ambulating and moving from a standing to a sitting position without assistance, using her walker. The nurse also examined the charts from R.G.’s facility, which included notes by medical and other staff, and conferred with staff and R.G.’s social worker, all of whom indicated that R.G. did not need help with ADLs. The court rejected R.G.’s argument that the nurse’s assessment was not comprehensive because she did not speak to R.G.’s doctor. The Division was not required to consult with a physician under the relevant regulation. Further, the nurse did not rely solely on R.G.’s own statements about her ability to perform ADLs, but instead confirmed R.G.’s statements by reviewing additional information. Because R.G. had not met her burden to show that the Division’s decision was arbitrary, capricious, or unreasonable, the court affirmed.

Takeaways: The court's decision in R.G. v. Div. of Med. Assist. & Health Serv. highlights that Medicaid recipients must meet not only financial requirements on an ongoing basis to be eligible for care at a nursing facility, but also clinical requirements. With increasing enrollment and fewer public funds to go around, states may become more assertive in examining whether Medicaid recipients continue to meet Medicaid’s minimum medical threshold.  

Business Law

IRS Issues Proposed Rule for Regarding the Tax Deduction for Qualified Tips

Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips, 26 C.F.R. Pt. 1 (Sept. 22, 2025)

The One Big Beautiful Bill Act provides an income tax deduction of up to $25,000 for qualified tips received by individuals in occupations that customarily and regularly receive tips. On September 22, 2025, the IRS published a proposed rule that provides a definition of qualified tips and identifies the occupations that customarily and regularly receive such tips.

Qualified tips are tips paid in a cash medium of exchange (e.g., cash, check, credit card, gift card, etc.) or received under a tip-sharing arrangement that are paid voluntarily and are not received in the course of a specified service trade or business as defined in I.R.C. § 199A(d)(2). To be considered voluntary, the payment of a tip must be made without any consequence due to nonpayment, must not be the subject of negotiation, and must be determined by the party paying the tip.

Occupations that customarily and regularly receive tips include not only those in the service industry involving interactions with customers but also those in which workers receive tips through tip-sharing arrangements. The proposed rule includes a chart categorizing and assigning codes to those occupations.

The deduction phases out for individuals with modified adjusted gross income exceeding $150,000. For married individuals, the deduction is available only if the taxpayer files a joint return with their spouse. The deduction is effective retroactively as of January 1, 2025, and applies to tax years 2025 through 2028.

Takeaways: Attorneys representing businesses with employees who may be eligible for the deduction should advise them to consult with their certified public accountant to ensure compliance with the proposed rule. Note, however, that on November 5, 2025, the IRS issued Notice 2025-62, which provides relief for taxable year 2025 from penalties for failure to file correct information returns and furnish correct payee statements related to deductions for qualified tips and qualified overtime compensation.

Businesses may want to examine the categories of workers who qualify for the deduction and adjust their tipping policies, such as mandatory service charges, to enable these workers to take advantage of the deduction. It is notable that some categories of workers not traditionally considered to receive tips, such as home electricians and plumbers, are eligible to take advantage of the deduction under the proposed rule.

California Consumer Privacy Act Updates: Large Fine for Tractor Supply and Opt Me Out Act

In re Tractor Supply Co., No. ENF24-M-TR-04 (Cal. Priv. Prot. Agency Sept. 26, 2026)

On September 26, 2025, the Board of the California Privacy Protection Agency (CPPA) adopted a final order imposing a $1.35 million administrative fine on Tractor Supply Company (Tractor Supply) for violations of the California Consumer Privacy Act of 2018 (the Act) (Cal. Civ. Code §§ 1798.100–1798.199.100). In an announcement, the CPPA stated that the fine was the largest in its history and the first to address the rights of job applicants under the Act.

The CPPA determined that Tractor Supply violated the Act by failing to implement a process to effectuate consumers’ requests to opt out of the sale or sharing of their personal information and to provide consumers and job applicants with a privacy policy informing them of their privacy rights under the Act and how to exercise those rights. In addition, Tractor Supply disclosed consumers’ personal information to other companies without executing contracts with those companies designed to maintain consumers’ privacy protections.

The order recognized that Tractor Supply had taken steps to remediate its practices to comply with the Act, but ordered it to take actions to ensure its compliance to the extent it had not already done so. The order requires Tractor Supply to provide the CPPA with a written certification of its compliance with the order and an annual review of its website and mobile applications aimed at identifying the third parties and service providers with which it shares consumers’ personal information and the contracts it has entered into to comply with the Act, by March 31, 2026, and for four additional years thereafter.

Cal. Assem. Bill No. 566 

On October 8, 2025, California Governor Gavin Newsom signed AB 566—California Consumer Privacy Act of 2018: opt-out preference signal, also called the “Opt Me Out Act”—which amends the California Consumer Privacy Act of 2018 to prohibit a business from developing or maintaining a browser that does not provide consumers with the ability to enable the browser to send an opt-out preference signal to businesses they interact with through the browser. AB 566 also requires affected businesses to disclose how the opt-out preference signal works and its intended effect. 

Businesses that develop or maintain browsers that comply with the California Opt Me Out Act’s requirements are provided immunity from violations by businesses that receive the opt-out preference signals.

An announcement released by the CPPA indicates that the intention of the new law is to allow consumers to automatically communicate to websites they interact with via browsers that they do not want their personal information to be sold or shared.

The effective date of the California Opt Me Out Act is January 1, 2027.

Takeaways: California was the first state to enact a comprehensive privacy law providing consumers with the right to protect their personal information. There are now 20 states with comprehensive privacy laws, and several others have narrower privacy statutes. The fine and compliance measures imposed on Tractor Supply by the CPPA serve as a reminder for businesses operating in multiple states to take the necessary steps to comply with each state’s privacy laws, which vary widely in terms of their type and extent of protections. California has some of the strictest requirements, and businesses operating there should prioritize compliance to avoid steep fines.

The California Opt Me Out Act has a narrow scope, as it applies only to businesses that develop and maintain browsers. California is the first state to require browsers to provide consumers with an easy method of communicating to websites that they do not want their private information shared or sold, but other states may follow its lead in expanding consumer privacy protections.

Other Related Legal Developments

California Court of Appeal Imposes $10,000 Fine on Attorney for Citing Fabricated, AI-Generated Legal Authority

Noland v. Land of the Free, L.P., 336 Cal. Rptr. 3d 897 (Cal. Ct. App. 2025)

A leasing agent brought suit against the defendants, who owned an office building and event space, for employment-related causes of action. The trial court ultimately granted the defendants’ motion for summary judgment, and the plaintiff appealed. The California Court of Appeal affirmed the trial court on the merits, but it also stated that the plaintiff’s opening and reply briefs contained dozens of fabricated case quotations and inaccurate citations that did not support the propositions for which they were cited.

The court emphasized that, under normal circumstances, the appeal was straightforward and would not merit publication. However, because many of the case quotations and some of the legal authorities cited in the plaintiff’s brief were fabricated by generative artificial intelligence (AI) tools, it decided to publish the opinion as a “warning.” Noland v. Land of the Free, L.P., 336 Cal. Rptr. 3d 897, 901 (Cal. Ct. App. 2025).

The court determined that an award of sanctions against the plaintiff’s attorney was appropriate because the plaintiff’s attorney’s briefs contained fabricated legal authority that he admitted was generated by numerous AI sources. The court held: “To state the obvious, it is a fundamental duty of attorneys to read the legal authorities they cite in appellate briefs or any other court filings to determine that the authorities stand for the propositions for which they are cited.” Id. at 912 (emphasis in the original). Because the plaintiff’s attorney failed to read the legal authorities cited, he “fundamentally abdicated” his responsibilities to both his client and the court. Id. Although the court noted that attorneys can use AI in a law practice, they cannot delegate their obligation to carefully check all citations, facts, and arguments to ensure their accuracy to “AI, computers, robots, or any other form of technology.” Id. at 913. 

The court found the appeal to be frivolous because it rested on a negligible legal foundation and was replete with fabricated citations and quotations. Further, the appeal unreasonably violated California Rule of Court 8.204(a)(1)(B), which requires attorneys to support each point in their briefs with “real (as opposed to fabricated) legal authority.” Id. at 914.

Because the plaintiff’s attorney provided fabricated legal authorities, the court was required to waste time searching for them and to research the issues presented without the plaintiff’s assistance; therefore, it concluded that an award of sanctions was appropriate. The court imposed a “conservative” sanction of $10,000, noting that the plaintiff’s attorney represented that his conduct was unintentional and that he had expressed remorse. Id. at 915. The court further ordered the plaintiff’s attorney to serve a copy of its opinion on his client and certify to the court that he had done so, and directed the court clerk to serve a copy on the State Bar of California.

Takeaways: It is crucial for attorneys to carefully verify information generated by AI tools before relying on it, as this can help avoid increasingly steep sanctions and fines, as well as the risk of legal malpractice claims and substantial public embarrassment. The Noland court declined to order sanctions payable to opposing counsel, noting that opposing counsel did not alert the court to the fabricated legal authorities and appeared to have become aware of them only when the court raised the issue. However, the court noted that sanctions would be appropriate in some cases, implying that the opposing counsel might have been entitled to sanctions if they had checked the citations and notified the court that the citations were fabricated.

In its opinion, the court noted that a superficial review of the literature regarding the use of AI tools by lawyers should have alerted the plaintiff’s attorney to the risks and that the State Bar of California issued guidance addressing the issue nearly two years before its decision. The American Bar Association has created a helpful webpage on which it is compiling information regarding state bars’ AI task forces and resources, including guidance, advisory opinions, and reports addressing attorneys’ use of AI. In addition, Bloomberg Law has compiled a table listing ethics guidance for attorneys on the use of AI.