Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, January 24, 2013

Gifting LLC Units

Gift TaxIf a couple who owns a large estate, estimated at $20 million, in publicly traded securities and income-producing real estate would like to bequeath their estates to their children without incurring a large estate tax and provide some of their estate to a charity of their choice, they might want to consider establishing a LLC. Once established the couple could transfer $6 million of their publicly traded securities and income producing real estate to the LLC in exchange for LLC units. In this instance, a cautious appraiser might only value LLC at $4.2 million. The couple might want to keep the remainder of their stock as liquidity. The couple might then want to transfer most (about 99%) of their LLC units to a CLAT (Charitable Lead Annuity Trust). An advisor would probably recommend that the couple take "a 6.01% payout rate and 25-year term of the CLAT."Under these circumstances, the couple would be able to claim 100% of their transfer-tax charitable deduction.

The CLAT would provide $252,420 a year to the charity of the couple's choice. "Because of the discount to the initial value, the underlying LLC portfolio will only need to generate a 4.207% annual return to satisfy the charitable distribution." The LLC should provide enough funds to the CLAT's annuity payments. Following the end of CLAT's term, the CLAT then distributes the remaining LLC units to couple's heirs. 

See Gift of LLC Units, Charitable Planning, Jan. 19, 2013. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

January 24, 2013 in Estate Planning - Generally | Permalink | Comments (1) | TrackBack (0)

There Is Still Time To Take 2012 Charitable IRA Rollover

Gift TaxAs I have previously discussed, the American Taxpayer Relief Act of 2012 maintained an old tax deduction that allows individuals who are 70 and a half years or older to exclude up to $100,000 of income. For a taxpayer, there are certain requirements that one has to meet. 

  • This exclusion only applies to IRA owners
  • The taxpayer must directly transfer the donation from his or her IRA to a "qualified" charity as defined by Section 170(b)(1)(A). Under this option, the taxpayer is allowed to credit the amount that he or she transfers against the IRA's required minimum distribution. 
  • The absolute deadline to take this exclusion is January 31, 2013. If the taxpayer makes the transfer in this month, the taxpayer can elect to treat the rollover has occurring in 2012.

See Reminder: Still Time To Make 2012 Charitable IRA Rollover, Charitable Planning, Jan. 18, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

January 24, 2013 in Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 23, 2013

Asset Protection Seminars May Not Give the Best Advice

UnknownAsset protection seminars could end up being a scam. Typically, in these seminars, the presenter will stir up fear about gold-diggers filing frivolous lawsuits to get your money.  Then the presenter offers a solution that always leads to a family limited partnership or an asset protection trust in a favorable jurisdiction. 

In reality though, asset protection is better dictated by each individual's objectives and circumstances. One key concern surrounding asset protection is implementation costs.  A certain approach may provide you with a bullet-proof solution, but it could cost a large amount to implement. Insurance is one potential asset protection solution that is fairly low-cost for most of the population. 

See Todd Ganos, Beware of Asset Protection Scams, Forbes, Jan. 20, 2013. 

January 23, 2013 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Fun With Estate Planning

Images-1Please click here for a fun comic related to estate planning!

January 23, 2013 in Estate Planning - Generally, Humor | Permalink | Comments (1) | TrackBack (0)

Some Helpful Points on Estate Planning in 2013

ImagesSteven J. Fromm, an attorney in estate, probate, tax and business law, recently blogged about some of the more important federal estate tax law changes made at the conclusion of last year.  

  • Federal estate and gift tax exemption is now permanently at $5,000,000 with annual inflation adjustments.
    • It is important to note that this is only applicable at the federal level, not at the state level.  So estate tax planning for most people will now be focused on minimizing state inheritance taxes.  
  • Once assets are above the exemption threshold, the estate tax rate is 40%.  
  • The exemption for lifetime gifts and transfers at death are now unified.  So if you use your exemption during your lifetime, it is not available when you die. 
  • Portability is now permanent.  This allows a surviving spouse to use an exemption that a deceased spouse did not use before his or her death. 
    • Fromm stresses that portability should be looked at as a fallback position where there was no estate planning done. 
    • There are some limitations and concerns with portability that should be considered, especially in a second marriage.
    • Portability does not save the GST exemption.  Where grandchildren and future generation s are part of an estate plan, portability will not save the unused GST tax exemption of the first spouse to die.  In these cases, using a dynasty trust is the better course of action. 
  • Annual donee exclusion: This is not party of the tax-law changes, but it is a traditional tool that allows for annual tax-free gifts of $14,000 in 2013.  Taxpayers can now give up to $14,000 to as many people as they want each year without using up their unified credit or paying a gift tax. 
  • Capital gains on appreciated assets will now be taxed at 20% rate for taxpayers with income above certain thresholds.  Capital gains below these thresholds will still be taxed at the 15% rate. 
    • Fromm notes an important tax basis rule here: "Taxpayers who receive appreciated property by a lifetime gift take a carryover basis, while beneficiaries who receive assets at the decedent's death get a step up in basis to the date of death value of such assets received."
  • Other notes: 
    • Create an estate plan that addresses your unique situation.
    • In younger families, beyond planning associated with taxes, it is important to set up a guardian for children and setting up a trust for protection of their assets and with an appropriate distribution scheme.
    • Those with second marriages may want to seek help to stay on top of special considerations that apply to them in estate planning. 
    • Special needs trusts may be appropriate for those with disabled children
    • Using an experienced estate planner is the best way to consider different strategies and make a plan that is right for you.
See Steven J. Fromm, Estate Planning 2013: Now What? A Must Read For Everyone, Philadelphia Estate and Tax Attorney Blog, Jan. 21, 2013. 

January 23, 2013 in Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (1) | TrackBack (0)

Taxpayers Erroneously Reported Billions In Non-cash Charitable Contributions

IRS 2A report from the Treasury Inspector General for Tax Administration (TIGTA) revealed that the IRS has not a good job making sure that taxpayers are complying with the reporting requirements for non-cash charitable contributions. According to Accounting Today, "[a]n estimated 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contributions in tax year 2010, which resulted in an estimated $1.1 billion reduction in tax." While taxpayers can deduct noncash charitable contributions, if the taxpayer incorrectly reports the assets they could be receiving tax refunds that they are not entitled to take.The IRS has accepted several recommendations from the TIGTA, which include clarifying reporting requirements and expanding the procedure that the IRS uses to examine tax returns that claim noncash contributions.

See Michael Cohn, Taxpayers Reported Billions in Potentially Erroneous Noncash Charitable Contributions, Accounting Today, Jan. 15, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

January 23, 2013 in Income Tax | Permalink | Comments (0) | TrackBack (0)

Having Trouble Trusting Your Kids With Their Large Gifts?

Gift TaxAs I have previously discussed, some taxpayers who took advantage of the high unified credit this past year are now regretting their decision. Some of these donors are worried that they made a mistake gifting a great amount of wealth to their children. According to the Wall Street Journal, "[w]ealth transfer to younger generations is the biggest concern among clients of U.S. Trust, Bank of America's private wealth management unit." One solution for parents is the use of a "quiet" trust. This type of trust will essentially keep the person who is set to inherit the vast sum of money in the dark about their inheritance. For example, some of these trusts are set to tell the beneficiaries of the trust's existence at a certain age. These trusts are only legal in about 13 states, but 19 other states have rules that imply that those types of trusts are permitted. During the recent rush to make gifts, the demand for quiettrusts increased. 

To some degree, these trusts are considered controversial because they interfere with a trustee's duty to report to the beneficiary of the trust. In quiet trusts, the donor specifies who the trustee will report to on all matters involving the trust. This type of trust is also controversial because many feel that it is wrong to hide gifts from the person that is receiving the gifts. Some argue that if a parent wants to keep secrets from their children, it might be a sign that there are other problems with the family that should be addressed. Even if a person decides to use a quiet trust, they probably should not keep his or her children in the dark for too long. A person should pick a reasonable age to let the beneficiary know. 

See Kelly Greene & Arden Dale, Can You Trust Your Kid With $5.25 Million?, Forbes, Jan. 18, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

January 23, 2013 in Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

The End of an Estate Planning Era

WillsSome estate planning attorneys believe that the passage of the American Taxpayer Relief Tax Act of 2012 (ATRA) marked the end of an era. The new law made the $5 million unified credit permanent, solving most of the uncertainty that has shadowed estate planning for the past decade. The uncertainty and the possibility of the unified credit decreasing created a lucrative business for estate planners. Many taxpayers rushed to take advantage of what many considered to be a once in a lifetime offer, and lawyers worked overtime to fill that order. Now that's over. With the unified credit set at $5.25 million (after the adjustment for inflation), almost no one has to worry about the estate tax. That means that the once lucrative business is over, and attorneys in this field will probably need to re-adjust. In addition, some attorneys are beginning to feel the backlash from clients who are concerned that they gave too much in their haste to take advantage of high unified credit. Soon, attorneys will begin the process of filing gift tax returns for the past year. With all of gifting that occurred at the end of the year, it is certain that by IRS audits of those returns will likely turn up some interesting techniques that attorneys used to pack more into the unified credit. We shall see what the future holds for our profession as we move into 2013.

See Deborah L. Jacobs, Morphing Into The New Age of Estate Planning, Forbes, Jan. 15, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

January 23, 2013 in Current Affairs, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 22, 2013

CTE Found in Former NFL Players While They're Still Living

Unknown-4UCLA conducted a pilot study where they scanned the brains of five former NFL players and found images of the protein that causes football-related brain damage.  This discovery marks the first time researchers have identified signs of chronic traumatic encephalopathy (CTE) in living players, and should be a big step towards being able to diagnose this disease in living patients.  

Dozens of former players, including 34 former NFL players, have been diagnosed with CTE after death. Currently, posthumous examination of the brain is the only way to confirm the disease.  CTE is a neurodegenerative disease linked to dementia, memory loss and depression, and it is triggered by repeated head trauma.  The disease is caused by a buildup of tau, an abnormal protein that strangles brain cells as it builds up.

Funded by a $100,000 grant from the Brain Injury Research Institute, UCLA researchers used a patented brain-imaging tool to examine 59-year-old Fred McNeill (former Vickings linebacker), 64-year-old Wayne Clark (former backup quarterback), and three other unidentified players. The scan lit up for tau in all five former players and the protein was concentrated in areas controlling memory, emotions and other functions--consistent with the pattern found in CTE brains studied after death. This study could open up new areas for CTE research as well as new areas for discussion about need for mandatory testing for this disease. 

See Steve Fainaru and Mark Fainaru-Wanda, CTE Found in Living ex-NFL Players, ESPN.com, Jan. 22, 2013. 

January 22, 2013 in Current Events | Permalink | Comments (1) | TrackBack (0)

New Dates! Estate Planning After the American Taxpayer Relief Act of 2012

Images-4Due to overwhelming demand, Estate Planning After the American Taxpayer Relief Act of 2012 will be rebroadcast two times beyond the original January 25 date. The two additional dates are: 

Monday, January 28, 2013: 2 p.m. to 3 p.m. Eastern

Tuesday, January 29, 2013: 2:30 p.m. to 3:30 p.m. Eastern

Please click on the date you choose for more information or to register.

January 22, 2013 in Conferences & CLE, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)