Wills, Trusts & Estates Prof Blog

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

Thursday, September 29, 2016

Spousal Lifetime Access Trusts

SLATModest net worth individuals need to balance their desire to make lifetime gifts with the need to maintain adequate funds to support their future. For married couples, a spousal lifetime access trust (SLAT) provides a solution. One spouse (donor-spouse) places assets into an irrevocable trust using their gift tax exemption. The SLAT names the non-donor spouse (beneficiary-spouse) as the beneficiary, allowing the trustee to make distributions to the beneficiary-spouse during life. SLATs provide several benefits, including the ability of the trust to benefit multiple generations without incurring additional estate or generation-skipping transfer taxes. 

See Spousal Lifetime Access Trusts (SLATs), Lexology, August 3, 2016. 

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

 

September 29, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Trusts | Permalink | Comments (0)

New Rev. Proc. Allows QTIP Election with Portability Election

Qtip elecitonThe 2010 amendment of IRC § 2010(c) allowed an estate executor to make a portability election; therefore, influencing the decision to make a qualified terminable interest property (QTIP) election. A QTIP election reduces the decedent’s taxable estate, further maximizing the amount of unused exclusion available for the decedent’s surviving spouse. Accordingly, the executor electing portability of the decedent’s unused applicable exclusion amount may wish to make a QTIP election, regardless of whether the QTIP election reduces the estate tax liability to zero.  

Rev. Proc. 2001-38, 2001-24 I.R.B. 1335 details a procedure for which the IRS will disregard and nullify federal estate, gift, and generation-skipping transfer tax for purposes of a QTIP election made when the election was unnecessary to reduce the estate tax liability to zero. With the use of portability elections, the ability to void and nullify QTIP elections in Rev. Proc. 2001-38 may bring questions over the ability of the decedent’s estate to make an unnecessary QTIP election for the sake of maximizing the available unused exclusion amount. Subsequently, this revenue procedure modifies and supersedes Rev. Proc. 2001-38. It confirms the IRS procedures for disregarding a QTIP election, but excludes those estates that made a portability election in accordance with § 2010(c). 

See 26 CFR 601.201: Rulings and Determination Letters; Rev. Proc. 2016-49.

 

September 29, 2016 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0)

How an ILIT Can Help Preserve Your Assets

ILITAn irrevocable life insurance trust (ILIT) can help provide liquidity to pay estate taxes, safeguarding your assets for your family. When you set up an ILIT, the trust is a holding vehicle for life insurance that removes the policy death proceeds from your estate when you pass. These trust held assets are immune from probate and estate taxes, making them a valuable estate-planning tool. There are some important considerations to keep in mind when deciding to create an ILIT. 

First, you must clearly define your wishes as to how the trust assets will be distributed at death. Next, it is important to remember that the trust increases your liquidity without having to add other assets, like stocks and investment property, allowing you to maintain control over those assets while the ILIT builds value. Finally, you should put forth diligent consideration on who will be the trustee for your ILIT because they must have the willingness and ability to carry out the terms you set forth. 

See 3 Considerations for an Irrevocable Life Insurance Trust, Forbes, September 19, 2016. 

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

 

September 29, 2016 in Estate Administration, Estate Planning - Generally, Estate Tax, Non-Probate Assets, Trusts | Permalink | Comments (0)

Sunday, September 25, 2016

Hillary Clinton's Proposed 65% Estate Tax Rate

ClintonHillary Clinton is proposing a 65% tax on the richest estates, making it harder for the wealthy to pass appreciated assets on to their heirs without paying taxes. This increase will generate $260 billion over the next decade, allowing her to pay for plans to simplify small business taxes and expansion on the child tax credit. Further, she is adopting a plan that would impose a 50% tax rate on estates over $10 million a person, a 55% rate starting at $50 million a person, and the top rate of 65%, affecting those with assets exceeding $500 million or $1 billion for married couples. Clinton would also like to repeal the step-up in basis rule, which will carry high capital gains taxes for particular assets inherited. Overall, Clinton would increase taxes by approximately $1.5 trillion in the next decade, which would increase the federal revenue by 4%. 

See Richard Rubin, Hillary Clinton Proposes 65% Top Rate for Estate Tax, Wall Street Journal, September 22, 2016. 

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

 

September 25, 2016 in Current Events, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Friday, September 23, 2016

Unintended Consequences of the § 2704 Proposed Regulations

Income tax reductionThe estate-planning world is still buzzing over the § 2704 proposed regulations released last month. These regulations restrict discounts that may result in a net loss of revenue to the Treasury with higher transfer tax values, leading to higher bases for transferees. Seemingly, increases in the estate tax that result from higher valuations would offset the income tax losses on later dispositions of the inheritance. However, this valuation also applies to estates that are not large enough to incur an estate tax, further binding them to the reductions in discounts from the new proposals. Additionally, the IRS is also bound. It can potentially foresee a diminishment in income tax revenues when heirs sell those inheritances for a smaller gain. Consequently, businesses that have been successful but not lavishly so can benefit from passing inheritances to those with higher bases, creating the diminishment of future income tax liabilities and no estate tax burden.   

See Dominick Schirripa, The Law of Unintended Consequences Meets the §2704 Proposed Regulations: Will Estate Tax Increases Cause Income Tax Reductions?, Bloomber Estate Tax Blog, September 15, 2016. 

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

 

September 23, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Monday, September 12, 2016

Finding Fairness in Inheritance Taxes

Taxing inheritancesToday, the government imposes a 40% estate tax over $5.45 million. Estate taxes help fund government programs, but it is only one policy tool that can make sure the wealthy pay their fair share. Most people have varying views on the estate tax’s existence; however, we can all agree on one thing—the estate tax you owe should not depend on the exact moment you die. In order to avoid this unfairness, there needs to be more stability in the tax code. Other countries’ estate tax stands at a median of 7%. Doing away with a high estate tax in the United States, however, will hurt those lawyers helping the rich skirt this tax.

See N. Gregory Mankiw, Why Taxing Fairly Means Not Taxing Inheritances, NY Times, September 9, 2016.

September 12, 2016 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Wednesday, September 7, 2016

Article on Fair Market Value of Art for Estate Tax Purposes

Art auctionDiana Wierbicki & Amanda A. Rottermund recently published an Article entitled, Art Auctions and Fair Market Value for Estate Tax Purposes, 30 Prob. & Prop., no. 5, 53 (2016). Provided below is a summary of the Article:

Public auction sale prices often are reliable sources for calculating the fair market value of estate art collections, but at times an artwork’s unique quality and the complexity of the art market call for a more nuanced analysis of fair market value. Such analysis takes into account additional factors, such as the strength of the art market on the date of death compared to the strength of the market on the date of sale and the structure of a public auction sale. This article explores how these additional factors make it difficult to pinpoint precise date of death fair market values for art.

September 7, 2016 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Tuesday, September 6, 2016

Article on New Reporting Requirements & Basis Consistency Rules

Basis consistencyNelson H. Hunt recently published an Article entitled, Congress Passes New Reporting Requirements and Basis Consistency Rules Under IRC §§ 6035 and 1014(f), 30 Prob. & Prop., no. 5, 21 (2016). Provided below is a summary of the Article:

On July 31, 2015, President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. No. 114–41, 129 Stat. 443 (the “2015 Act”). The 2015 Act created two new provisions in the Internal Revenue Code, IRC §§ 1014(f) and 6035. IRC § 1014(f) provides the new “basis consistency requirement.” IRC § 6035 provides new reporting requirements on executors, who now, in addition to filing Form 706, must file new Form 8971 and furnish its Schedule A to beneficiaries of the estate. The 2015 Act also provides failure-to-file penalties for the reporting requirements and a 20% underpayment penalty for an “inconsistent estate basis.” On January 29, 2016, the IRS published Form 8971, “Information Regarding Beneficiaries Acquiring Property from a Decedent.” On March 4, 2016, the Treasury published proposed regulations under both IRC § 1014 and IRC § 6035. See 81 Fed. Reg. 43, at 11, 486.

September 6, 2016 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Conferring a Power of Appointment

POAA power of appointment (POA) is a power that a trust beneficiary has to direct to or for whom trust property will pass, representing a non-fiduciary power. When conferring a POA, it is important to use clear language that specifies when the power is exercisable, to or for whom it is exercisable, what property may be disposed of, and what procedure must be followed. There are also several important estate and gift tax consequences that follow based on the type of POA identified. Ultimately, a POA is the most direct and efficient way for a property owner to confer power on another to determine the destination of property.

See Charles A. Redd, Tips from the Pros: Don’t Overlook the Power of Powers, Wealth Management, August 25, 2016.

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

September 6, 2016 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Friday, September 2, 2016

The Benefits of a Charitable Lead Trust

CltA charitable lead trust (CLT) pays annuities to one or more charities of your choice for a specified term or for life. At the end of the term, the remaining assets will pass to any non-charitable beneficiaries. During the term, if the trust generates higher total returns, any excess growth will pass to your non-charitable beneficiaries free of gift tax. This benefit is determined in part by the interest rates at the time of trust creation. Low interest rates will produce a greater tax deduction and reduction in the gift tax. On the other hand, charitable deduction amounts are determined based on the size of charitable payments, the length of charitable term, and the IRS prescribed rates for calculating the present value of charitable payments. A CLT represents an opportunity for significant estate and gift tax savings.

See Albert W. Gortz, George D. Karibjanian, David Pratt, Mitchell M. Gaswirth, & Andrew M. Katzenstein, Charitable Lead Trusts Can Save Transfer Taxes, National Law Review, July 31, 2016.

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

September 2, 2016 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)