Transfers Not Subject to Gift Tax

United States taxpayers pay an estate or gift tax on wealth transfers to the extent that the aggregate value of the transfers, whether upon death or during lifetime, exceeds $12,920,000 in 2023. On January 1, 2026, this exclusion amount is scheduled to be reduced roughly in half. Because of this, many taxpayers are considering utilizing this high capacity to give without taxes by utilizing their exclusion before it is reduced.

In general, any gratuitous transfer is reportable, and will reduce a taxpayer's capacity to transfer wealth without tax, but there are important exceptions. One important exception is the annual exclusion, which I discussed in a prior post, which currently allows each taxpayer to gift up to $17,000 per year per donee. This is perhaps the most widely known mechanism for transferring wealth without any gift or estate tax impact, but there are others as well.

Any taxpayer may make unlimited tuition payments on behalf of any individual without needing to report the gift, pay gift tax, or use their lifetime exclusion. Any such payments must be made directly to the educational institution. Similarly, any amounts may be paid to educational institutions for their general charitable purposes, just as any amounts may be paid to other charitable organizations free of gift or estate tax.

Any taxpayer may generally make payments directly to medical providers for medical payments or medical insurance premiums for others. Not only are such payments free from gift or estate tax, an income tax deduction may be available for the taxpayer, just as a charitable deduction may be available for gifts to charities for the benefit of the public. Finally, gifts to political organizations are generally exempt from gift tax. Using the tools described herein can be effective ways to mitigate gift and estate taxes.

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Legal Pitfalls for Inexperienced Fiduciaries

As a simple local news search will reveal, criminal charges are regularly brought against fiduciaries who have allegedly breached their fiduciary duties. Criminal charges in the area of estate and trust administration could include unlawful dealing of property by a fiduciary and financial exploitation of a vulnerable adult.

The former is committed when a fiduciary "deals with property that has been entrusted to him as a fiduciary... in a manner which the person knows is a violation of the person's duty and which involves substantial risk of loss or detriment to the owner or to a person for whose benefit the property was entrusted." The latter is committed when anyone, among other things, "unjustly or improperly uses or manages the resources of a vulnerable adult for the profit or advantage of someone other than the vulnerable adult..."

There are obvious examples of cases where a fiduciary admits to using trust funds for personal use and criminal charges are warranted. However, it is not difficult to imagine a scenario where an inexperienced fiduciary has good intentions but doesn't keep a proper accounting or invests trust funds imprudently and a vindictive beneficiary seeks criminal charges.

An inexperienced trustee should clearly be held to account and restore, but there are civil remedies and civil damages available to beneficiaries that seem more appropriate as a first resort. Any fiduciary would be well-advised to seek legal counsel to avoid civil or criminal issues arising from their service.

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Petition for Essential Treatment and Intervention

As I discussed in a prior post, completing a Declaration for Mental Health Treatment can be a useful way for someone with drug abuse or mental health challenges to provide for their own care if they reach a point where they can no longer care for themselves. If a Declaration is not completed, and the person becomes at risk of harming themselves or others, seeking an emergency guardianship from a court may be considered. Such motions can be ex-parte, meaning that no notice or hearing is required, and if granted, an emergency guardianship lasts for 30 days.

A third option, however, for cases of drug abuse, is known as a Petition for Essential Treatment and Intervention, which became available in 2017 pursuant to Utah Code 62A-15-1201. This law was passed to "address the serious public health crisis of substance use disorder related deaths". The proceeding commences in court when a "relative seeking essential treatment and intervention for a sufferer of a substance use disorder" files a petition with the district court where the sufferer lives.

The petition must identify a treatment facility where the sufferer may receive treatment and a binding commitment on the part of the petitioner to pay for treatment costs. Upon receiving the petition, the court will "set an expedited date for a time-sensitive hearing to determine whether the court should order the respondent to undergo essential treatment for a substance use disorder" and provide notice of the same to the interested parties. Unless the sufferer objects or the court orders otherwise, two essential treatment examiners will examine the sufferer before the hearing and make treatment recommendations to the court. If the court ultimately finds that treatment is required, it can order treatment and subject the sufferer to a warrant of commitment if they do not comply.

A Petition for Essential Treatment and Intervention is confidential, and the Utah Courts website provides all of the necessary forms for individuals who want to proceed without an attorney. While such a petition is not a panacea, it should at least be considered as an alternative to a guardianship.

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Posthumous Common Law Marriage in Utah

In Utah, like many states, marriage-like relationships that were never solemnized can be declared valid by court or administrative order. "A petition for an unsolemnized marriage shall be filed during the relationship... or within one year following the termination of that relationship", which includes termination due to the death of one of the parties. Utah Code 30-1-4.5(2)(a).

A key step in any posthumous common law marriage petition is securing the appointment of a personal reresentative over the decedent's estate because the marriage petition must be served on the personal representative. Gardiner v. Taufer, 2014 UT 56, 342 P.3d 269. A court order of a common-law marriage after death would significantly impact the rights of the natural relatives of the decedent, making a probate proceeding indispensable.

Any petitioner must be prepared to show the court that the petitioner and the decedent (a) were of legal age and capable of giving consent to the marriage, (b) were legally capable of entering a solemnized marriage, (c) cohabited, (d) mutually assumed marital rights, duties, and obligations; and (e) held themselves out as and had acquired a uniform and general reputation as husband and wife. See Utah Code 30-1-4.5(1). Consent to the marriage can be shown by "maintenance of joint banking and credit accounts; purchase and joint ownership of property; the [sharing of a spouse’s] surname by the [other spouse] and/or the children of the union; the filing of joint tax returns; speaking of each other in the presence of third parties as being married; and declaring the relationship in documents executed by them while living together, such as deeds, wills, and other formal instruments." Volk v. Vecchi, 467 P.3d 872, quoting Whyte v. Blair, 885 P.2d 791, 794-795.

There are many reasons to seek a posthumous common law marriage, such as "to claim insurance benefits, retirement benefits, survivor benefits, or public benefits, or to inherit property." The Utah Courts provide a marriage petition form on their website as well as ancillary documents. However, due to the multiple proceedings that may be required and the evidentiary requirements, seeking legal counsel in a marriage petition is strongly advised.

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Co-Fiduciaries in Probate and Planning

The terms of fundamental estate planning documents always include designating a fiduciary in each such document. Specifically, a last will will designate a personal representative of the estate, a power of attorney and health care directive will designate an agent to make decisions during life, and a trust agreement will designate a successor trustee. If an individual does not have a power of attorney or health care directive, a guardianship and conservatorship will sometimes be required, wherein the court will appoint a guardian and/or conservator.

There are obvious benefits in designating multiple co-fiduciaries in any of these situations as opposed to a single fiduciary. Co-fiduciaries can provide a check and a balance on each other and share the burdens of serving in the role. The primary downside is more complexity in carrying out the co-fiduciaries' duties because often multiple fiduciaries will need to act together in signing documents or taking other action.

The terms of the relevant governance document must always specify whether co-fiduciaries can act independently or if they must act together. State law provides default answers in certain circumstances, but it is not always clear or predictable what the default rule is. Utah Code 75-3-716 states that co-personal representatives of an estate generally act by majority vote unless the will provides otherwise, and Utah Code 75-7-703 addresses co-trustees and by default would require the action of both. Utah Code 75-2a-108 also provides for majority vote in the health-care decision-making context.

However, Utah Code 75-9-111 has the opposite default in the case of co-agents under a power of attorney, meaning that each can act independently unless the governing document provides otherwise. The comments to the Uniform Probate Code indicate that some questions as to whether co-fiduciaries must act together were deliberately left to state law, and in Utah anyway, it is unclear what the default rule is in the case of co-guardians and co-conservators. Best practices clearly require the governing document or court order to specify whether co-fiduciaries can act independently or whether they must act together.

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Introduction to Premarital Agreements

A prenuptial or premarital agreement refers to "an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage." Such agreements are strongly recommended anytime an individual with separate assets intends to marry.

The reason why a premarital agreement is important is because, by virtue of a marriage, spouses assume certain legal duties and obtain certain rights with respect to their spouse and their spouse's assets, especially in the event of divorce or death. For example, in the event of divorce in Utah after a long-term marriage, a judge would likely award alimony to one spouse to the extent needed to maintain the lifestyle they enjoyed during the marriage for a period up to the length of the marriage. Alimony can and often is a negotiated term of a premarital agreement.

Another example of a right that a surviving spouse has in Utah is the right to an "elective share" of the assets of the first spouse to pass away, calculated as one-third of the "augmented estate." This right of election effectively makes it nearly impossible to disinherit a spouse, even in very short-term marriages, and even where a trust or other non-probate transfers are involved.

The right to an elective share can be waived, and often is waived in a premarital agreement. However, the waiver can be set aside by a court pursuant to Utah Code 75-2-213(2), which contains essentially the same standard for setting aside a premarital agreement itself under Utah Code 30-8-6(1). Specifically, such agreements must be voluntary and not fraudulent (or not "unconscionable" in the case of an elective share waiver) and must have been accompanied by adequate disclosure or knowledge of the property or financial obligations of the other spouse.

There are of course many additional legal implications of a marriage and a premarital agreement. These should be discussed with an experienced attorney well in advance of the wedding date.

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Utah Declaration for Mental Health Treatment

The Utah Advance Health Care Directive Act, among other things, allows an individual to sign an Advance Health Care Directive and appoint an agent to make health care decisions on their behalf. However, "[a]n adult's current health care decisions, however expressed or indicated, always supersede an adult's prior decisions or health care directives." This raises the question as to how an agent or medical professional can help someone who is refusing necessary care or otherwise acting contrary to their best interests.

A common course of action in this scenario is to seek guardianship, possibly on an emergency basis, over the person who is acting contrary to their own best interests. However, this can be an expensive, invasive, and time-consuming process that may lead to a court dismissal of the guardianship or a guardianship that unduly restricts the protected person's rights.

One alternative that is worth considering in Utah for anyone with mental health struggles is a Declaration for Mental Health Treatment. The key difference between this declaration and an Advance Health Care Directive is that a Declaration for Mental Health Treatment may not be revoked if the principal is considered incapable of making mental health treatment decisions by two physicians. In such a scenario, a declaration allows the declarant's agent to make decisions about mental health treatment as expressed in the declaration even if the declarant expresses contrary preferences or attempts to revoke the declaration.

For an excellent article on psychiatric advance directives like Utah's Declaration for Mental Health Treatment, see Mental Health Directives in Estate-Planning Engagements in Trusts & Estates by Moira S. Laidlaw. Such directives are an important tool that strikes a balance between the potential inefficacy of an Advance Health Care Directive and the overbearing nature of a guardianship for individuals experiencing an acute psychiatric episode.

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