Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Thursday, November 27, 2014

Steer Clear of Holiday Debt


As the holiday season is officially in full swing, many households are concerned about the inevitable debt that comes.  Fifty-seven percent of American adults with children say they are willing to take on debt to make their children happy, and this year, holiday debt will linger longer for middle-income families. 

The holidays do not have to end with a mountain of debt.  By combining savvy shopping, healthy restraint, and strategies for finding extra cash can bring you into the New Year without regrets.  Below are some helpful tips:

  • Set a budget. Take a look at your savings and see how much you can afford to spend this holiday.  Stay on target and do not exceed your budget.
  • Create a spending plan. This should include everything you plan to spend money on such as gifts, travel, parties, restaurants, etc.  If the final number exceeds your budget, find ways to get discounts or cut spending. 
  • Meaningful gifts rather than pricey gifts. People often appreciate thoughtful presents that focus on experiences, memories or quality time with loved ones. 
  • Compare prices. You can do this by flipping through the advertisements crowding your inbox or searching the Internet for the best deals.  When you shop, bring competitor ads along.
  • Take advantage of credit card awards.  See if you have enough points for a free flight home, or enough points to cover gift expenses.
  • Dig up unused gift cards. You may have a stack of forgotten gift cards in your wallet that you should use before they expire. 

See Deborah Jian Lee, 15 Ways to Avoid Holiday Debt, Forbes, Nov. 26, 2014.

November 27, 2014 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Roth IRA Conversions No Longer on Sale

Black friday

Black Friday is right around the corner, but there won’t be any deals on Roth IRA conversions.  For Roth IRA account owners who did conversions in November 2012, the two-year increase of 5,200 points or 41 percent has been a windfall. These individuals have benefitted in three different ways:

  1. Elimination of income tax on 100 percent of Roth IRA appreciation. Those who did a Roth IRA conversion in November 2012 have eliminated taxation on 100 percent of sizable appreciation in the value of their Roth IRA in just two years.  Yet, even with the inevitable stock market downturn, the opportunity for further appreciation and elimination of additional income tax liability remains a real possibility for most individuals who did Roth conversions two years ago.
  2. Roth IRA not subject to required minimum distribution (RMD) rules. Roth IRA beneficiaries may continue to extend the life of Roth IRA assets with one difference: they are required to take annual minimum distributions beginning the year following the year of the original owner’s death.
  3. Reduced exposure to RMDs for remaining traditional IRAs. When you do a partial Roth IRA conversion, you reduce your exposure to RMDs on any remaining traditional IRAs. 

See Robert Klein, No Bargains on Roth IRA Conversions this Friday, Market Watch, Nov. 25, 2014.

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

November 27, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Things to Give Thanks For in Retirement

ThankfulOn this day of thanks, here are some things that those who are retired or approaching retirement in the United States can give thanks for:

  • Inflation rates are currently low.
  • Life expectancy is longer than previous generations.
  • Additional retirement fund assistance from Social Security.
  • A variety of choices of investment methods to plan for financial stability in retirement.
  • The nonfinancial things to be thankful for, including health, family, and friends.
  • The financial planning benefits that the internet brings.

See Bob Powell, Powell: Retiree Stats, Ect., To Be Thankful For, USA Today, Nov. 22, 2014.

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

November 27, 2014 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Date of Delivery For Gifts

Gift3With the holiday season in full swing, 'tis the season to review  date of delivery rules for charitable gifts, which determine the date that the gift was made and affect the tax consequences of the gift. Here are the general rules for determining date of delivery for some types of  property when given as a gift:

  • Securities: The day the securities are hand delivered and received by the charity, or the day the securities are mailed to the charity through the U.S. Postal Service.
  • Mutual fund shares: The day that the transfer from the fund's management to the charity is complete.
  • Checks: The day the check is mailed through the U.S. Postal service, and by certified mail and not post dated.
  • Tangible personal property: The day the gift is received through both possession and title.
  • Real estate: The day that the deed is received by the charity, or the date that the deed is recorded if required by local law to make the deed effective.
  • Gifts Made by credit cards: The day the bank makes the payment to the charity.
  • Donations made via a text message: The day the donor sends the text message.

See Conrad Teitell, Charitable Gifts: Date of Delivery Rules, Wealth Management, Nov. 24, 2014.

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

November 27, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 26, 2014

Article on the Estate Tax Charitable Deduction

Edward Zelinsky

Edward A. Zelinsky (Yeshiva University, Benjamin Cardozo School of Law) recently published an article entitled, Why the Buffett-Gates Giving Pledge Requires Limitation of the Estate Tax Charitable Deduction, Florida Tax Review, Vol. 16, No. 7, 2014.  Provided below is the abstract from SSRN:

The Buffett-Gates Giving Pledge, under which wealthy individuals promise to leave a majority of their assets to charity, is an admirable effort to encourage philanthropy. However, the Pledge requires us to confront the paradox that the federal estate tax charitable deduction is unlimited while the federal income tax charitable deduction is capped. If a Giving Pledger leaves his wealth to charity, the federal fisc loses significant revenue since the Pledger thereby avoids federal estate taxation as charitable bequests are deductible without limit for federal estate tax purposes. Despite its laudable qualities, the Giving Pledge is a systematic (albeit inadvertent) threat to the estate tax base. 

The Giving Pledge requires the amendment of the federal estate tax to restrict an estate’s charitable deduction to a percentage of the estate, just as the income tax charitable deduction is limited to a percentage of the taxpayer’s income. In this fashion, the sensible compromise embedded in the income tax charitable deduction would be carried over to the federal estate tax to simultaneously encourage charitable giving while ensuring that all large estates pay some federal estate tax. 

The Giving Pledge need not be the death knell of the estate tax. It should instead be the catalyst to reform the tax by limiting the estate tax charitable deduction.

November 26, 2014 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Stepping Up as Successor Trustee


When a current trustee is unable to serve, a successor trustee fills the vacancy.  In order to act, the successor trustee will need to show a certificate or affidavit of trust, as this is indicative that they embody the legal authority to act on behalf of the trust. 

Upon an individual’s death or incapacity, the assets held in trust are not frozen and the successor trustee can access and manage the assets without court intervention.  However, any assets that are not held in trust will be frozen until someone with proper legal authority to manage them comes forward.  This may require court intervention. 

In order to take advantage of potential tax benefits, minimize trustee liability, and maintain proper records, careful attention should be taken by the trustee to complete all of the required duties.  Consider seeking professional help, as it may expedite the settlement process and insure no steps are missed.

See Carissa Giebel, Acting as a Successor Trustee, Green Bay Gazette, Nov. 24, 2014. 

November 26, 2014 in Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

8 Common 529 Plan Misconceptions

Student loan

A 529 college savings plan is a vehicle allowing families to save for college costs with tax-deferred earnings growth and tax-free distributions.  Additionally, many states offer a tax break for residents contributing to their plans. 

However, the rules about purchasing the plan and using the money can be difficult to digest, and there can be much confusion about how the plans operate.  Below are some of the common misconceptions:

  1. You are limited to your home state’s plan. Many individuals believe they are limited to plans offered by their state of residence.  However, a buyer can select any state’s plan, but first look to see if your state offers tax benefits or reductions for residents.
  2. Contribution limits equal those of your IRA. 529 plan contribution limits are set by the states and can be as high as $380,000.  To avoid gift tax consequences, federal law allows single taxpayers to contribute up to $14,000 in one year or make a lump-sum contribution of $70,000 to cover five years.  “It’s not limited to $5,500 if you’re under 50 like it is with an IRA.”
  3. Your income is too high to contribute. Some investors confuse a 529 plan with a Coverdell Education Savings Account, which is only available to people with income below $110,000 for singles or $220,000 for those married filing jointly.  529 plans have no income limits.
  4. The account must be in your child’s name. The donor, not the beneficiary is in charge of a 529 plan.  Thus, it is best to have the account with the parent listed as the owner or the trustee with the child as the beneficiary.
  5. The money will be lost if your child does not go to college.  If the beneficiary does not use the money in the 529 plan for some reason, the assets can be transferred to another beneficiary.  A 529 plan is very flexible.
  6. The money can only be used for a four-year college. Funds from a 529 plan can be used toward many postsecondary education programs, not just traditional colleges.
  7. The beneficiary must be below a specific age. A 529 plan can be opened for a beneficiary of any age, and the funds can be distributed regardless of how old the beneficiary is when he or she attends college or graduate school.
  8. It will hurt your child’s chance of getting financial aid. Although 529 plans will factor into the financial aid calculation, the benefits usually outweigh the drawbacks.

See Kate Stalter, 8 Common Misconceptions About 529 Plans, U.S. News & World Report, Nov. 24, 2014. 

November 26, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Battle Over Officer's Estate

Dave Monrogio

A battle is brewing over the estate of a Naples police officer who killed himself during a domestic violence double shooting. 

The Board of Trustees of the Naples Police Officers’ Retirement Trust Fund filed a complaint this month, asking a judge to determine who should receive Officer Luis “Dave” Monroig’s $100,000 lifetime pension: his ex-wife or his mother. 

Although Monroig’s sixteen-year marriage ended in divorce in August 2013, he never changed the primary beneficiary of his city pension benefits before shooting both himself and his girlfriend in her Estero home. 

The complaint states, “The Board of Trustees cannot determine which defendant is entitled to the death benefit under the terms of the (pension) plan, the marital settlement agreement, the beneficiary designation and (a new state law) without running the risk of double payment.” 

Under the law, which went into effect July 1, 2012, if the policy holder designated an ex-spouse as a primary beneficiary before their marriage legally ended and the policy holder dies on or after July 1, 2012, that beneficiary is considered predeceased and benefits would then go to the contingency beneficiary. The law affects life insurance policies, annuities, IRAs, 401Ks and other employee benefit plans.

Monroig’s father is also challenging his daughter-in-law’s right to his estate, which involves a car worth $5,000 and other personal effects, clothing, and furniture. 

See Aisling Swift, Battle Heats Up Over Dead Officer’s Pension, Estate, Naples News, Nov. 23, 2014.

November 26, 2014 in Current Affairs, Estate Administration, Estate Planning - Generally, New Legislation | Permalink | Comments (0) | TrackBack (0)

Using an IRA and DAF for Charitable Estate Planning

BagFor individuals wishing to continue their charitable donations into the afterlife, a Donor-Advised Fund can assist in this area of estate planning. By naming a qualified foundation as beneficiary of an IRA and entering a Designated Fund Agreement, a DAF can provide tax benefits such as reducing estate tax and capital gains, and make sure that the donor's favorite charity in life is still supported after their death.

See, DAF as the Beneficiary of an IRA, Charitable Planning, Nov. 20, 2014.

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

November 26, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Risks of Retained Death Benefit Life Settlements

RiskA retained death benefit life settlement allows the seller to retain the contractual right to death benefits, such as a life insurance policy, to have the purchaser maintain the policy  and pay some death benefits to the seller. However, these policies can be risky for sellers. In addition to the risk of the policy lapsing despite notice requirements to the seller, tax consequences can vary by each agreement and are often unfavorable for sellers. The tax consequences depend on how the transaction is treated, such as being considered an annuity or loan or other type of transaction. These policies can be complicated, and require careful consideration and balancing of risk versus reward.

See Robin S. Weinberger and Peter N. Katz, Retained Death Benefit Life Settlements: Considering the Uncertainties, Life Health Pro, Nov. 21, 2014.

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

November 26, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)