The annual Heckerling Institute on Estate Planning is considered the pre-eminent trust and estate conference in the country. Danielle White, Vice President of Client Service at Hillview Capital Advisors, attended the week long gathering earlier this year where professionals discussed issues facing wealthy families and business owners; topics ranged from legal, tax, and accounting to cyber security. Summarized below are a few important takeaways from the conference resulting from new interpretations of existing laws and measures affecting wealth holders.

Since the indefinite extension of the lifetime estate exemption (currently $5.43m per person and $10.86m per married couple), Heckerling’s focus has transitioned from solely estate planning to one with an emphasis on income tax planning. The topics highlighted at this year’s conference that had the broadest application to wealth holders were that of portability, retirement planning, and a new topic called, “digital asset planning.”


The concept of portability may be viewed as a paradigm shift in estate planning for married couples. In the event of death, portability permits the surviving spouse to inherit the deceased spouse’s unused estate tax exclusion (“DSUE”), which can be used for estate or gift tax purposes. It became effective for any married person deceased after 2010. The American Taxpayer Relief Act of 2012 made portability permanent. Prior to this act, if the deceased spouse left all assets to the surviving spouse, the estate tax exclusion was lost. Historically, spouses would divide assets such that the deceased spouse would fund a credit shelter trust to his/her family with the estate tax exclusion amount. With the permanence of portability, planners are re-evaluating the most effective ways to utilize the lifetime estate tax exemption, which represents a significant change in planning for many married couples.

Portability is generally relevant in two situations. The first is where one spouse has insufficient assets to fully utilize the available exclusion. The second situation would involve a more deliberate choice to rely on portability by implementing a plan that makes the election available. Instead of splitting the estate of the deceased spouse into a traditional credit shelter or a bypass trust and a marital trust, the entire estate would pass in a form which qualifies for a marital deduction, thereby creating a taxable estate of lesser value than the deceased’s available applicable exclusion amount. The excess would be “ported” to the surviving spouse.

The advantage of relying on portability is simplicity – at least in the eyes of many married couples. Portability permits the deceased’s assets to be left outright to the surviving spouse instead of bequeathed to a credit shelter trust. An additional benefit of portability is that there is a second basis adjustment upon the surviving spouse’s death. This evolution in marital planning is causing attorneys to question the efficacy of the traditional bypass/credit shelter trust.* For those who choose to continue to use these traditional techniques, it may be worth considering how to include part or all of the bypass trust’s assets in the survivor’s gross estate to accomplish a step-up in basis at death. Finally, portability allows married couples to avoid state estate tax in a decoupled state. This means that if the state estate tax exclusion is less than the federal exclusion, the state estate tax on the difference can be deferred.

There are a few disadvantages of portability worth mentioning:

  • The generation-skipping transfer (GST) exemption is not portable; only the lifetime estate tax exclusion qualifies
  • Any assets passing outright to the spouse are not in the form of a trust and are therefore subject to claims of creditors
  • The DSUE is not indexed for inflation, and any appreciation will be includable in the surviving spouse’s estate

The overriding conclusion on the importance of portability is that wealthy families should not abandon traditional estate planning techniques. For estates that will not exceed one spouse’s anticipated basic exclusion amount ($5.43m for 2015), portability is probably the most favorable option. In these cases (assuming no asset protection issues exist), the recommendation would be to hold assets jointly with rights of survivorship. When the numbers are assessed, the traditional forms of estate planning for an affluent couple continue to have merit, and the after tax results are nearly certain to be more attractive than solely relying on portability.

Wealthy individuals should also remember that portability is elective rather than automatic; the regulations require the deceased spouse’s executor to make the portability election on a timely filed estate tax return. The portability election is also irrevocable. More recently, the IRS published the Revenue Procedure 2014-18 addressing the applicability of portability to same sex couples. As part of this code, for federal tax purposes, the term ‘spouse’ includes individuals married to a person of the same sex if the individuals are lawfully married under state law


Retirement Planning
For those who are not using the cash flow from retirement account distributions to fund their lifestyle, outlined below are a few alternative ways to use these distributions which may prove beneficial.

Alternative #1
Consider taking distributions in kind rather than in cash when possible. One consideration is to distribute an investment that will likely provide long term appreciation after the investment is made. If the asset appreciates, the post distribution gain could qualify as a long term capital gain or it could receive a stepped up basis upon death – neither of which is possible for appreciated assets held inside a retirement plan. As an aside, the holding period begins the day after the investment is distributed, not when it was purchased in the retirement account upon the surviving spouse’s death.

Alternative #2
For the charitably inclined, donate the required minimum distributions (“RMD”) directly to a charity from the IRA. Retirees can donate up to $100,000 tax free from their IRA each year, and those assets are excluded from income if the distribution is made directly to a charity. If a distribution is taken and a charitable gift check written for the same amount, individuals will receive the income tax charitable deduction for the amount of the gift. However, this may not save the most tax money. Since deductions are not itemized, the distribution must be reported and included in income, increasing Adjusted Gross Income (AGI) and thereby increasing the taxability of social security benefits.

Alternative #3
Another consideration is when to take the first year’s RMDs. Normally, each year’s RMD must be taken by December 31st of that year. However, the first year’s lifetime RMD can be postponed until April 1st of the following year. If the income tax bracket in the first year is decidedly higher than it will be in the second, foregoing the postponement may be the best option. Take the first year’s RMD in that year to avoid getting stuck with a double distribution in the second year. Another reason to forego the postponement option is to reduce a client’s audit risk. In 2010, the IRS announced a major initiative to ensure people are taking their RMDs.

Additional retirement planning strategies discussed at this year’s conference included using distributions or Roth conversions to keep income consistent and low. Income tax rates increased sharply in 2013 as the Bush Era tax cuts expired, and new taxes became effective. The top federal income tax bracket increased to 39.6% (qualified dividends are now taxed at 20% for high income taxpayers), and there is now an additional 3.8% income tax on net investment income. These changes put a premium on the ability to keep income level and low. IRA distributions are not subject to the 3.8% additional income tax, but an IRA distribution does count toward the income threshold, so a large IRA distribution can cause the individual’s other income to be subject to the 3.8% tax. Taking larger than required IRA distributions (or better yet using a Roth conversion) in lower income years may smooth out income enough to avoid hitting the top bracket and/or the 3.8% additional tax level in other years. Generally, a Roth conversion is beneficial if the income tax paid on the conversion is less than the income tax you would have had to pay on the same dollars if left in the traditional IRA and withdrawn at a later date. In other words, if your tax bracket is expected to be higher in the future, consider a Roth conversion now if it can be done at a lower bracket.


Digital Asset Planning & Security
A new topic at this year’s conference was digital asset planning and security. Discussions centered on the evolution of estate planning in the digital age and new measures necessary in a world where cyber security is increasingly relevant to high net worth individuals.

Digital assets are electronic records accessed by tangible devices such as a computer, smartphone, tablet or server. Typically, ownership of digital assets is governed by their respective “terms of service agreements.” Many of these agreements do not authorize fiduciaries to access the deceased’s digital assets. Why is this an issue? When an individual is unable to maintain their online accounts, it becomes easier for criminals to hack these accounts and use their information for fraudulent activities (e.g. open credit cards, obtain identification cards, etc.). Providing access to fiduciaries can help mitigate the risk of identity theft. Additionally, access to these digital assets can aid in carrying out fiduciary responsibilities.

The Uniform Fiduciary Access to Digital Assets Act (“UFADAA”) was drafted with the purpose of creating a uniform act to vest fiduciaries with the authority to access, manage, and distribute digital assets. It also resolves many of the impediments to fiduciary access and allows them to carry out their duties. The UFADAA is ready for consideration and enactment by states. In the interim, estate planners should:

  • Conduct an inventory of all online accounts and passwords
  • Ensure that all estate planning documents provide for the authorization of the fiduciary to access such assets
  • Ensure that all estate planning documents authorize the fiduciary to terminate any accounts and protect the deceased’s identity.

We welcome the opportunity to discuss any of the above topics in more detail. Please do not hesitate to reach out to your Hillview client service team with your questions or concerns.





* Traditional estate planning encouraged wealthy married couples to create a marital trust (also called an A trust) in conjunction with a credit shelter trust (also called a “B” trust). A marital trust goes into effect at the death of the first spouse at which time assets of the surviving spouse are moved into trust (A trust). A marital trust allows spouses to pass assets to each other without tax consequences. A credit shelter trust (B trust) is also created at the first spouse’s death with an amount up to the estate tax exemption which is subject to estate taxes however due to the applicable exemption, no taxes will be owed. The surviving spouse maintains control of assets in the A trust and receives income from the B trust. At the death of the second spouse, only the A trust will be subject to federal estate taxes. Typically, the B trust will continue on for the benefit of the grantor’s family, often the children.

The information presented is provided for educational and informational purposes only. Hillview Capital Advisors, LLC (“Hillview”) does not represent that any tax strategies discussed will either be suitable or profitable for clients or prospective clients. The opinions expressed herein reflect Hillview Capital Advisors’ judgment as of this date and are subject to change. Certain information contained in this report has been taken from sources we deem reliable. Hillview does not make any representations or warranties as to the accuracy, timeliness, suitability or completeness of any information prepared by or obtained from any publically available source. Neither Hillview, nor its directors, officers, employees, affiliates or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in the information. Further, Hillview is not under any obligation to update or keep the information current, and the information has been provided solely for convenience purposes and all users should be guided accordingly. This information should not replace a client or prospective client from consulting with legal, tax and estate planning professionals for in-depth advice.

Hillview is a SEC registered investment adviser with offices in New York, NY and Wayne, PA. Additional registration information about Hillview can be obtained by contacting us at 484.708.4720. More detailed information about Hillview, including fees and services, can be obtained in the same manner by requesting our disclosure statement as set forth on Form ADV Part 2.




  The annual Heckerling Institute on Estate Planning is considered the pre-eminent trust and estate conference in the country. Danielle White, Vice President of Client Service at Hillview Capital Advisors, attended the week long gathering earlier this year where professionals Read More…