Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over nine years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Utah Adopts Uniform Electronic Wills Act

Beginning August 31, 2020, pursuant to the Uniform Electronic Wills Act, Utahns have the option of executing a last will and testament without the traditional paper and ink and physical presence of witnesses. Before the adoption of the Electronic Wills Act, wills in Utah were generally required to (i) be in writing, (b) signed by the testator, and (c) signed by at least two individuals, each of whom signed within a reasonable time after witnessing the signing of the will. The Electronic Wills Act keeps each of these requirements but adapts them for a modern world.

An electronic will must still be "in writing," or more particularly, in "a record that is readable as text at the time of signing." A "record" includes electronically-stored information "retrievable in perceivable form." Importantly, a video or audio recording of the testator's last wishes does not constitute a will because the electronic files would not be "readable as text."

An electronic will must still be signed by the testator, but under the Electronic Wills Act, "signing" includes executing or adopting a tangible symbol or logically associating with the record a symbol or process with the intent of authenticating or adopting the record as the last will. The Electronic Wills Act is designed to be flexible enough so that no particular software or application is needed to adopt a will.

Finally, an electronic will must still be signed by two individual witnesses who observed the testator sign the electronic will, but such individuals need not be in the physical presence of the testator; electronic presence is sufficient. Under the Electronic Wills Act, "electronic presence" requires that the witnesses be "communicating in real time to the same extent as if the individuals were physically present." An electronic will may be simultaneously executed, attested, and made self-proving with the help of a notary public as described in Utah Code 75-2-1408.  This section expressly supersedes the Notaries Public Act, meaning that remote notarization appears to be permitted in the context of an electronic will.

Estate planning practitioners have resisted laws permitting electronic wills for many years, fearing that electronic wills would be more likely to result in contests and other estate controversy. While these concerns will likely persist, the current pandemic has clearly illustrated the need for an electronic wills option. Currently, Utah is one of only a handful of states have adopted an electronic will statute, but more states are sure to follow.

Introduction to Claims Against an Estate

A creditor of an individual who passes away has certain rights but must take affirmative steps to preserve those rights in order to receive payment. In Utah, a creditor wishing to present a claim must deliver or mail a written claim to the personal representative of the estate or the personal representative's attorney of record or file a claim in the court probate proceeding. Practically speaking, this means that a creditor can only bring a claim against an estate after a personal representative has been appointed.

All claims against a decedent's estate that arise before the death of the decedent must be presented within one year after the decedent's death at the latest. The personal representative has the opportunity to shorten this timeframe by either giving written notice to known creditors that claims must be presented within 60 days or publishing notice to creditors generally that claims must be presented within 90 days. With few exceptions, these time limits are absolute bars to recovery of debts from an estate.

Accordingly, best practices for a creditor include monitoring probate filings to see whether a personal representative has been appointed over a debtor's estate because the creditor may not necessarily receive actual notice of the appointment or a notice to present claims. If the one-year mark from the decedent's death is approaching and no personal representative has been appointed, a creditor in Utah must file its own petition for appointment of a personal representative together with its claim.

Statutory allowances for surviving spouses and children as well as various costs of estate administration, last medical bills, and taxes all have priority for payment over unsecured creditor claims. Moreover, the personal representative has until 60 days after the time for original presentation of the claim has expired to mail the creditor a notice of disallowance. If the creditor's claim is properly disallowed, the creditor must seek a court-ordered allowance by filing a petition for allowance within 60 days after the mailing of the notice of disallowance. If the claim is valid, the estate has sufficient funds, and the creditor complies with the law, its right to be paid will be preserved. 

2020 Filing Deadline for Calendar Year Partnerships

As part of its response to COVID, the IRS issued a series of notices, culminating with IRS Notice 2020-23, 2020-18 IRB (April 9, 2020), which generally extended the deadline to file tax returns and pay taxes to July 15, 2020. Pursuant to the Notice, any person with "a Federal tax return or other form filing obligation specified in this section III.A..., which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is affected by the COVID-19 emergency for purposes of the relief described" in that section. Such "affected taxpayers" are entitled to the relief of the extended deadline.

The notice goes on to specify that the "filing obligations specified in this section III.A" include "[c]alendar year... partnership return filings on Form 1065, U.S. Return of Partnership Income...," which absent the Notice would normally be due on March 16, 2020. According, the Notice creates an ambiguity: Is the due date for calendar year partnership returns extended to July 15 because "calendar year partnership return filings" are specifically included on the list of specified federal form filing obligations entitled to relief, or does the due date for such returns remain at March 16 because they are not due on or after April 1, 2020? This ambiguity was noted shortly after the Notice was issued.

Unofficially resolving this ambiguity, the IRS website currently states, "Notice 2020-23 does not postpone any return filings that were due on March 16, 2020. If a fiscal year partnership or S-corporation has a return due to be filed on or after April 1, 2020, and before July 15, 2020, that filing requirement has been postponed to July 15, 2020." The website does not specifically mention "calendar year partnerships" like the Notice does.

As a practical matter, most partnership tax returns would have had extensions filed before March 16, 2020 anyway because the IRS guidance wasn't issued until after that due date. However, if an extension was not filed for your partnership's return, there is a good argument that binding guidance from the IRS granted an automatic extension to July 15, 2020.

What to Do After A Loved One Passes Away

When a loved one passes away, there are a number of legal and financial matters that must be attended to. One of the first steps the family must take is to make funeral and burial arrangements. Consider whether the decedent had a life insurance policy specifically for funeral expenses or a prepaid funeral plan. Death certificates should be ordered, which many funeral homes will help with. Banks, mortgage holders, credit card issuers, employers, government agencies (such as the SSA), utility companies, and the decedent's advisors should be notified of the decedent's passing. Dealing with large estates is beyond the scope of this post, but in those instances, there are a number of critical tax deadlines that should be discussed with an attorney.

An estate is a separate taxable entity recognized by the IRS; accordingly, the personal representative should obtain an employer identification number from the IRS. The personal representative should also file IRS Form 56 in order to notify the IRS of the fiduciary relationship. The benefit of filing this form is that any correspondence the IRS attempts to send to the decedent at the decedent’s address will be instead sent to the fiduciary, which can avoid problems that arise due to missing IRS deadlines. Other mail for the decedent should also be forwarded.

The decedent's final debts should be paid; note that many debts, such as credit card debts, can be negotiated and satisfied for less than face value. Publishing a notice to creditors can provide assurance that no creditors will come forward after the time prescribed by statute.

The most time-consuming process will likely be to gain custody of all of the decedent's assets and arrange to distribute those assets to the beneficiaries. Some entities with custody of the decedent's assets, such as a bank, may grant custody of the asset to the decedent's representative pursuant to a small estate affidavit; otherwise, probate will likely be required. If the decedent established one or more trusts during their lifetime, a process of trust administration will likely be required. Many assets, such as life insurance policies, pass to heirs outside of any will or trust pursuant to beneficiary designation. The decedent's beneficiaries will need to submit claim forms to the financial institution issuing such policies. One oft-omitted step is to see if the decedent has any unclaimed property being held by the state.

Whatever property the decedent did own should be listed in a detailed inventory, together with their fair market values. Tangible assets should be safeguarded until distributed to the rightful recipients. Once all claims against the estate have been paid and provision made for any final taxes or professional fees, the beneficiaries of the estate should sign a "receipt and release" indicating that they agree with the final distribution. Once the estate has been distributed and final expenses paid, the estate can be closed.

Utah Probate Update

In a prior post, I discussed a new law requiring personal representatives to send copies of most probate pleadings to the Office of Recovery Services via certified mail. I predicted that this new law would not remain unchanged for long, and I was correct. Utah H.B. 343 limits the court filings that trigger notice to probate petitions and places the burden on the court to send notice. This is a logical change in the law that reduces unnecessary paperwork and eliminates a pitfall for the unwary.

In addition, two new rules regarding probate contests have been passed. Utah Rules of Civil Procedure 26.4 adds clarity to the process for contested probate proceedings where a party makes an objection to an action arising under the Utah Uniform Probate Code. Most notably, the objector, now the defendant in the matter, must file a written objection with the court setting forth the grounds for the objection and supporting authority and mail the objection to the other interested parties. If the defendant fails to do this, the relief sought by the petitioner can be granted. Estate planning documents must generally be included in initial disclosures and, in the case of a guardianship or conservatorship, an evaluation of less restrictive options is now required.

Finally, Utah Code of Judicial Administration Rule 6-506 provides that "all probate disputes will be automatically referred by the court to the Alternative Dispute Resolution (ADR) Program," unless waived by the court, which has long been the practice in Third District. This new rule also clarifies the procedures for a pre-mediation conference. Probate contests are often complicated matters with difficult family dynamics, and these new rules provide some needed clarity.

Updating Estate Plans for the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted on December 20, 2019. The Act made a number of changes to how retirement plans function, such as increasing the age at which retirement plan participants need to take required minimum distributions (RMDs) to 72, making it easier for small business owners to set up and maintain retirement plans, and allowing many part-time workers to participate in a retirement plan. However, the SECURE Act made an important change that impacts the see-through trust rules, which will require many individuals to update their revocable living trust agreements and estate plans.

Prior to the SECURE Act, non-spouse beneficiaries who inherited a retirement plan or IRA (i.e., descendants of the IRA owner) could qualify to "stretch" their inherited IRA and take RMDs calculated based on the descendant's life expectancy. This was generally a good thing because it resulted in the maximum deferral of income taxes, and trusts were drafted to help ensure that this stretch opportunity was realized where a trust was named as the beneficiary of an IRA. I discussed how trusts can qualify as beneficiaries of an IRA in a prior post.

The SECURE Act largely eliminated the law that allowed non-spouse IRA beneficiaries to stretch IRA distributions over their life expectancy. Now, most non-spouse beneficiaries must receive (and take into income) the entire IRA account balance within ten years of the death of the account owner, regardless of whether the beneficiary or a trust for the beneficiary's benefit was the named IRA beneficiary. There are good reasons why an account owner would want to name a trust as the beneficiary of their IRA, such as protecting an imprudent beneficiary from squandering an inheritance, including inherited IRA funds. This need still exists, but because of the SECURE Act, many trust provisions describing the trustee's obligations with respect to IRAs need to be changed.

Specifically, many trust agreements drafted before the SECURE Act provided that trust beneficiaries would receive their inheritances in a continuing trust known as as a "conduit trust" for IRA purposes. A conduit trust requires the immediate distribution of all funds withdrawn from the IRA to the individual trust beneficiary. The ten-year rule under the SECURE Act would, therefore, result in trust beneficiaries receiving all of the inherited IRA funds ten years after the account owner's death. A large, mandatory trust distribution at a fixed time during a trust beneficiary's life is inconsistent with what most trustmakers intend in naming trusts as IRA beneficiaries in the first place. Even worse, however, is that trusts that are not amended to function appropriately under the SECURE Act and which are designated as IRA beneficiaries could even result in the ten-year stretch being reduced to five years.

Most post-SECURE Act trust agreements will have beneficiary's continuing trusts qualify as "accumulation trusts," as opposed to conduit trusts, for IRAs paid to such trust, which would not require the immediate distribution of IRA funds. Post-SECURE Act trust agreements will also be drafted consistent with the SECURE ACT's exception to the ten-year IRA payout rule for individual beneficiaries less than ten years younger than the account owner and disabled and chronically ill individuals, who can continue to take distributions over their their life expectancy. Disabled beneficiaries in particular may benefit from inheriting an IRA through a continuing trust, but it is critical that such a trust be calibrated to the SECURE Act to ensure the lifetime stretch opportunity is preserved. In sum, now is the time to update your estate plan so that it functions properly under the SECURE Act.

SBA Loans for Small Businesses Impacted by COVID-19

According to the Small Business Administration, small business owners "in all U.S. states and territories" are currently eligible to apply for a low-interest rate loan if the business has suffered substantial economic injury due to coronavirus.

These loans are available through the SBA’s Economic Injury Disaster Loan Program. The loan amount can be for up to $2 million at a 3.75% interest rate for businesses and 2.75% for nonprofits with a term of up to 30 years, depending on the borrower’s ability to repay. These loans can be used to pay for debts, payroll, accounts payable, and other bills that can’t be paid because of coronavirus. Detailed information and online application forms are available on the SBA's website.

UPDATE: Since I published this post, information about the CARES Act has become available. Among other things, this act creates a new "Paycheck Protection Program," which authorizes forgivable SBA loans to eligible businesses. More information is located at this link.