Wills, Trusts & Estates Prof Blog

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

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Friday, July 18, 2014

Political Commentary on the Estate Tax With a Dash of Humor

John OliverJohn Oliver addressed the politically hot topic of income inequality through his combination of news, commentary, and comedy on ‘Last Week Tonight’ on Sunday. At about minute seven of the segment he directly addressed the estate tax.

See Patrick Kevin Day, John Oliver Tackles Income Inequality on ‘Last Week Tonight’, Los Angeles Times, July 14, 2014.

Special thanks to Michael Booth (Chicago Estate Planning Attorney) for bringing this article to my attention.

July 18, 2014 in Current Affairs, Estate Tax, Television | Permalink | Comments (0) | TrackBack (0)

When a Personal Representative Refuses to File Estate Tax Return

Question3The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, allows unused estate tax exclusion amounts to be transferred to the surviving spouse. The transferred exclusion is then added to the estate tax exclusion amount when that spouse dies. The transfer requires an election by the personal representative of the estate. A potential problem arises if the personal representative refuses to make the election. One possible solution is to negotiate with the personal representative of the estate, as the reason for not making the election may be based on the high cost of filing an estate tax return. Another possible remedy would be to ask the probate court for help.

See Jeffrey Skatoff, Personal Representative Required to File Estate Tax Return to Claim Portability?, Clark Skatoff, July 16, 2014.

July 18, 2014 in Estate Administration, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, July 17, 2014

Using an LLC as an Estate Planning Tool

Couple doing paperwork

The Limited Liability Company (LLC) is a hybrid legal entity that is beneficial not just for small-business owners, but is also a powerful tool for estate planning.  If you want to transfer assets to your family members, but are worried about gift and estate taxes, an LLC can protect assets during your lifetime and reduce taxes owed by you or your family members.

Creating a family LLC with your children allows you to reduce not only the estate taxes your children would be required to pay on their inheritance, but it also enables you to distribute inheritance to your children during your lifetime, without being bludgeoned by gift taxes.  This is made possible while also providing the ability to maintain control over your assets. 

In a family LLC, the parents maintain management of the LLC, with children or grandchildren holding shares in the LLC’s assets, however, they do not have any management or voting rights.  This allows parents to buy, sell, trade or distribute the LLC’s assets.  Thus, parents can maintain control over the assets and protect them from financial decisions made by younger members. 

Upon establishing your family LLC, you can begin transferring assets pursuant to your state’s legal process.  You subsequently decide on how to translate the market value of those assets into LLC units of value, similar to stock in a corporation.  It then becomes possible to transfer ownership of your LLC units to your children or grandchildren. 

See Michelle Ullman, Using an LLC for Estate Planning, Investopedia, July 15, 2014.

July 17, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

New York Estate Tax Changes Fall Short of Goal

TaxAs I have previously discussed, New York enacted new estate tax laws that increased the state estate tax exemption. The state was motivated by a desire to prevent wealthy residents from moving to other states with lower estate tax. However the increased exemptions, which will reach an estimated $6 million by 2019, do not benefit estates that are worth more than 105% of the exemption amount, as the exemption will no longer apply to those wealthier estates.

There is more bad news for wealthy estates in New York. The new estate tax does not adopt the concept of portability, and gifts made within three years before death that are more than the $14,000 annual exclusion will be taxed under a newly created state estate tax.

See Robert W. Cockren et al., New York State Reduces its Estate Tax for Some, Increases it for Others, Mondaq, July 14, 2014.

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

July 17, 2014 in Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, July 14, 2014

New Edition of Federal Taxation of Estates, Trusts and Gifts: Cases, Problems and Materials Released

Bloom2Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law Albany Law School) and Kenneth F. Joyce (SUNY Distinguished Teaching Professor of Law Emeritus SUNY Buffalo Law School) have recently released the Fourth Edition of their outstanding casebook entitled Federal Taxation of Estates, Trusts and Gifts: Cases, Problems and Materials along with a comprehensive Teacher's Manual.

Here is the publisher's description of the book:

This new edition of Federal Taxation of Estates, Trusts and Gifts again blends a traditional casebook approach with a problem method, to develop student understanding of the relevant rule structure pertinent to the transfer of wealth. The transactional organization facilitates student comprehension by repeatedly exposing students to certain themes, such as reason for deductibility, taxation based on passage of economic benefit, and valuation. This Fourth Edition also uses structured problems to facilitate an understanding of the doctrinal framework, analytical processes, and policy issues.

Federal Taxations of Estates, Trusts and Gifts presents a comprehensive study of the tax aspects involved in the wealth transfer process: Chapter 1 provides indispensable background on the federal wealth transfer and related income tax systems. Chapter 2 provides an overview of each of the tax systems. Chapters 3, 4, and 5 outline the basic structure of the gift, estate, and generation-skipping transfer tax systems and include an examination of underlying policy questions. Chapters 6 through 13 explore how the transfer tax systems, plus the relevant income tax rules-especially the grantor trust provisions of subchapter J-apply to various transactions, most of which are in the nature of testamentary substitutes. The income taxation of estates and non-grantor trusts and their beneficiaries is comprehensively covered in Chapter 14. The book ends with Chapter 15, which provides options for reforming, as well as alternatives to, the tax systems.

The Fourth Edition contains not only the changes made by the American Taxpayer Relief Act of 2012 as well as more recent developments, but also highlights a variety of estate planning considerations. While relying on well-recognized leading cases, it also includes recent and significant cases, rulings, and regulations that either break new ground or expand on existing law.

July 14, 2014 in Books - For the Classroom, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, July 13, 2014

IRS Penalty for Late Filing Affirmed Despite Taxes Paid on Time

GavelAs I have previously discussed, last year the Federal Claims Court held an estate liable for a late filing penalty, which occurred due to the executor relying on legal advice to delay the filing until the surviving spouse became a U.S. citizen and qualified for a marital deduction. Even though the return was filed late, the estimated taxes, which covered the taxes due, were paid before the penalty period was reached. The decision by the Federal Claims Court was appealed.

In Estate of Liftin v. U.S., the United States Court of Appeals for the Federal Circuit affirmed the penalty assessed for filing late. The 25% penalty applied by the IRS was the same penalty that would have been applied if no payment had been made.

See Roger Russell, Estate Liable for Late-Filing Penalty Despite Timely Payment of Taxes, Accounting Today, July 9, 2014.

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

July 13, 2014 in Estate Administration, Estate Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

Friday, July 11, 2014

New York Estate Tax Changes

Tax CutNew York has enacted changes to their estate tax. The changes include increasing exclusion amount over the next 4 years until the basic exclusion in New York will equal the federal estate and gift tax credit. While the benefits of the changes have limitations, this is a huge improvement for New York’s high state estate tax, which the state feared was driving wealthy residents to other states.

See Anthony J. Enea, Column: Some Estate Tax Relief Arrives for New Yorkers, West Fair, July 8, 2014.

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

July 11, 2014 in Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

The Drawbacks of FLPs

ConFamily limited partnerships can be beneficial for shielding assets from creditors, lowering estate and gift taxes, and protecting a family business. However, FLPs have their drawbacks, such as:

  • Expense: FLPs can incur serious set up costs, including legal and appraisal fees.
  • Limitations: Not all assets are appropriate for FLPs, and including real property can result in a high tax bill.
  • Drama: FLPs do not resolve any conflicts between children after the parents are gone.
  • More limitations: The assets in the FLP are for business, not personal use.

See Tom Nawrocki, 6 Pitfalls That Clients Eyeing an FLP Need to Consider, Life Health Pro, July 9, 2014.

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

July 11, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Thursday, July 10, 2014

7 Indicators Your Estate Plan Is Outdated


Estate planning is not something we should do once and then completely disregard.  With unpredictable futures and ever changing laws, it is imperative that estate plans are frequently updated.  Below are some indicators that your estate plan may be outdated:

  1. You have had a birthday. Any time you have had a birthday that makes you reflect on your future and your family, you should consider revisiting your estate plan to ensure your current preferences are adequately represented. 
  2. Buying major assets. If you have bought real estate or another asset that has changed your financial status, it might be a good time to check in with your estate-planning attorney. 
  3. Death of a child or fiduciary.  Update your estate plan to remove the deceased person’s name.  If you do not, years from now your personal representative or successor trustee will have to get original death certificate for the deceased person. 
  4. Marriage or divorce. Any changes in marital status will require significant changes to your estate plan. 
  5. Started, purchased, or sold a business. Meet with your estate-planning attorney to ensure that your estate plan is structured properly to deal with the business if you become disabled and put together a business exit plan.  If you’ve sold a business, make sure sale proceeds are titled in your name. 
  6. Moved to a new state. State laws dictate what estate planning documents you need to include and how they need to be signed.  Different states impose different estate taxes so you want to be up to date on the taxable status of your estate.
  7. A beneficiary or fiduciary has gotten married or divorced. It is important to keep in touch with your fiduciaries so you know about changes in their lives as that may change your preferences about what your estate plan dictates for the future of your family and loved ones. 

See Bonnie Bowles, 7 Reasons Your Estate Plan May Be Outdated, Examiner, July 8, 2014. 

July 10, 2014 in Estate Planning - Generally, Estate Tax, Income Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Kennedy Family Wealth Leaves Lasting Legacy

Kennedy family 2Members of the Kennedy family have occupied almost every political position in America, including the roles of congressmen, senator, state representative, and President.  The sustaining force behind the Kennedys reign can be attributed to Joseph P. Kennedy, who made vast amounts of money from insider trading only to later chair the SEC.  It is estimated that the family’s fortune is around $1 billion. 

The majority of the family’s wealth is held in trusts, which range in value from thousands to as much as $25 million.  The task of investing the family trusts is handled by outside organizations, and day-to-day oversight is managed by an advisory board of six experts.

Joseph P. Kennedy’s decision to place his fortune in trusts is one of reasons why the family wealth is still in existence.  The trusts protect the family assets from government taxes.  By holding assets in “dynasty trusts” the Kennedy family is insulated from the estate tax.  If handled correctly, a dynasty trust could potentially maintain an un-taxable fortune indefinitely. 

Other tax-advantaged strategies enable the Kennedy family to sustain their wealth.  Christopher Kennedy acknowledged, “We are a very public family with a very private investment philosophy.”

See Carl O’Donnell, How The $1 Billion Kennedy Family Fortune Defies Death And Taxes, Forbes, July 8, 2014. 

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

July 10, 2014 in Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)