Wills, Trusts & Estates Prof Blog

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

Thursday, February 22, 2018

Trusts in the Age of Trump: Time to Re-Engineer Your Estate Plan

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-22/02c53198-0d17-4fcf-b733-503cd0185703.pngThe Tax Cuts and Jobs Act makes some exciting alterations to various parts of the tax code. For estate and tax planners, ranking among the most notable changes are the increase to the estate tax exemption thresholds and tax breaks for qualified business income. As might be expected, clever lawyers have started pushing the limits of these new rules to mitigate taxes for themselves and for their clients. A ploy concocted for a client by Steven Oshins, an estate lawyer in Las Vegas, involves taking his client’s $1.6 million in yearly earnings and placing portions into eight separate non-grantor trusts for his 3 children and 8 grandchildren. Since each trust can shield up to 20% of the transferred profits, maxed out at $150,000, this maneuver saves the owner nearly $90,000 in taxes. A delighted Oshins commented on the situation: “Congress can't contemplate what creative estate planners will come up with.”

See Ashlea Ebeling, Trusts in the Age of Trump: Time to Re-Engineer Your Estate Plan, Forbes, February 13, 2018.

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

February 22, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Wednesday, February 21, 2018

Article on Implicaciones Fiscales De La Legítima Catalana (Tax Implications of the Catalan Forced Heirship Institution)

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-20/c41b7e8a-36ef-4210-8f8c-b660d7b7a456.pngAlberto Artamendi Gutiérrez recently posted an Article entitled, Implicaciones Fiscales De La Legítima Catalana (Tax Implications of the Catalan Forced Heirship Institution), Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article:

Spanish Abstract: Tal como establece el artículo 451-1 del Código Civil de Cataluña, "La legítima confiere a determinadas personas el derecho a obtener en la sucesión del causante un valor patrimonial que este puede atribuir a título de institución hereditaria, legado, atribución particular o donación, o de cualquier otra manera". Así pues, la legítima catalana se configura como un derecho de crédito de ciertos parientes contra los herederos del causante, lo que contrasta con la regulación del resto de España, donde el Código Civil, en su artículo 806, establece que la legítima es un derecho sobre los bienes de la herencia: "Legítima es la porción de bien de que el testador no puede disponía miedo haberla reservado la ley a determinados herederos, llamados por esto herederos forzosos".

Esta diferente aproximación al concepto puede parecer banal en un primer análisis, pero lo cierto es que las consecuencias del diferente tratamiento son amplias y profundas, y hay que decir que, tal vez por el reducido ámbito personal y territorial de aplicación - los ciudadanos españoles con vecindad civil catalán - o por la relativa novedad y desconocimiento de esta institución (el libro cuarto del Código civil de Cataluña entró en vigor el 1 enero 2009, si bien esta institución ya existía antes con diferente configuración e implicaciones jurídicas) éstas no han sido previstas en absoluto por la normativa tributaria, dando lugar a situaciones difíciles de resolver.

Por este motivo, el presente artículo analizará esta institución desde el punto de vista tributario, intentando ordenar las escasas guías normativas, doctrinales y jurisprudenciales que existen y proponiendo soluciones para las lagunas legales que todavía hay.


English Abstract: Article 451-1 of the Catalan civil code establishes a right of certain relatives to receive certain economic value from the succession of a person. This right, called “legítima” is therefore a credit right of certain relatives against the heir of a deceased person. In the rest of Spain, there is also a “legítima”, but as a direct right against the assets of the deceased person, as another heir (article 806 of the Spanish civil code).

This different configuration of the right can look trivial at first glance, but the legal consequences of these two “legítimas” differ widely and one could argue that these different consequences have not been covered whatsoever in the Spanish tax law, giving rise to situations that are very difficult to solve. This lack of regulation might be due to its small personal and territorial sphere of application (the Spanish citizens with civil residence in Catalonia) or the fact that this is a relatively new and unknown institution (the catalan “legítima” was introduced on 1 January 2009, although the institution already existed prior to this date with a different configuration and legal consequences.

This article analyzes the catalan “legítima” from a Spanish tax point of view, trying to put together the scarce existing regulation and case law and proposing legal solutions for the loopholes that still surround this particular institution.

February 21, 2018 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Monday, February 19, 2018

How the New TCJA Tax Law Affects Life Settlements

'Your policy does cover wind damage, but not from huffing and puffing.'The Tax Cuts and Jobs Act has had a notable impact on life settlements. The increase in the estate tax exemption to $11.2 million for individuals and $22.4 million for couples in 2018 necessitates a comprehensive review of insurance policies purchased for estate planning purposes. When reevaluating outdated estate plans, clients and planners may find that many of these polices, including second-to-die contracts, are no longer required. If this is the case, these policies may need to be surrendered. Prior to a client surrendering their policy though, prudent planners should be aware of their responsibility to investigate the alternative possibility of a life settlement instead. In some cases, a life settlement can offer more value for a client as opposed to surrendering the policy to the issuing insurance company.

See Robin S. Weinberger & Peter N. Katz, How the New TCJA Tax Law Affects Life Settlements, ThinkAdvisor, February 2, 2018.

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

February 19, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Linda Kotis: Your Heirs May Find Your Single Member LLC Taxing

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-19/99a2ff55-88db-4fca-80e6-3ad45606a144.pngLinda Kotis recently published an Article entitled, Linda Kotis: Your Heirs May Find Your Single Member LLC Taxing, Wealth Strategies Journal (2018). Provided below is an abstract of the Article:

I. SMLLC Scenario and Potential Consequences
Archie and Edith were married for 50 years. After Archie’s death, Edith sold their home in Queens, New York for a tidy profit. Archie also named his wife as the beneficiary of a large insurance policy he bought when he first started working at the loading dock. Edith’s financial advisor recommended that she invest the gain from the sale of her home along with the insurance proceeds in a Manhattan duplex. Edith wasn’t interested in staying in New York, so about five years ago she moved to Arlington, Virginia to be closer to cousins on Archie’s side of the family. The duplex is currently owned by a New York single member limited liability company (“SMLLC”). Gloria and Mike, her daughter and son-in-law, live in one of the property’s units, and her grandson, Joey, lives in the other. Each family pays rent to the SMLLC for its unit. The current value of the duplex is $6.5 million.

Edith was advised to create the SMLLC to avoid ancillary probate and New York state estate tax. Unfortunately, the SMLLC may not accomplish either of those purposes. Edith is looking at her estate plan again and wants to know what will happen to the SMLLC at her death.

This SMLLC may create costly and unintended consequences for Edith’s estate. Depending on the duplex’s value, there may be a New York State (NYS) estate tax liability. Even if no estate tax is due, the estate may still have to file a NYS estate tax return. This is a complex task which raises the cost of estate administration and could have been avoided. Furthermore, filing the NYS estate tax return requires submission of information to New York tax authorities that may trigger inquiries into Edith’s residency status. Ancillary probate may be required if the death of Edith as the sole member causes the dissolution of the LLC. This also adds to the burden of estate administration, both increasing time and cost.

This article will: (i) review taxation of limited liability companies at the federal and state levels; (ii) address treatment of a SMLLC for nonresident New York estate tax purposes; (iii) discuss ancillary probate and estate administration; and (iv) offer potential solutions to minimize potential state estate tax liability and burdens of estate administration.

February 19, 2018 in Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Fixing Outdated Irrevocable Trusts

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-19/d784c1f6-8c9a-45e6-9b6e-c84581ca41eb.pngEstate planners now meeting with clients to review their outdated estate plans commonly come across irrevocable trusts set up by those clients in the 1980s, 90s, or early 2000s. Many of these trusts were established at a time when the estate and gift tax exemption thresholds were much lower and affected a larger group of taxpayers. The point of creating these trusts was to lower the size of a client’s estate in order to avoid as much estate and gift tax as possible. Under the current tax law, these trusts are no longer as necessary and may even be detrimental to an estate plan. In Wisconsin, changes to the Wisconsin Trust Code provide more options for planners and clients to modify or terminate these irrevocable trusts.

See Jacqueline L. Messer, Fixing Outdated Irrevocable Trusts, Milwaukee Business Journal, February 5, 2018.

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

February 19, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Sunday, February 11, 2018

Watch out for the Gift Tax Trap in the New Tax Law

Opposition To The Stamp ActThe Tax Cuts and Jobs Act virtually doubled the estate tax threshold. A single taxpayer can now own up to $11.2 million in assets at death without triggering the death tax. Married couples are allowed twice that amount, $22.4 million, as long as they make a timely portability election subsequent to the passing of the first spouse. In addition to this pretty incredible threshold increase, beneficiaries of a decedent’s estate still receive a step up in basis. So, a child receiving a deceased parent’s house would not have to pay tax on the increase in value of the home. This can mean huge savings in taxes, especially when a parent has held on to a home for decades with significant increases in value. While these benefits are exciting for those wanting to pass on property, the misapplication of these new tax rules could potentially incur additional unwanted taxes.

See Melody Juge, Watch out for the Gift Tax Trap in the New Tax Law, MarketWatch, February 1, 2018.

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

February 11, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Tuesday, February 6, 2018

How the Tax Code Rewrite Favors Real Estate Over Art

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-06/00236488-6f78-4e12-85e9-eaf43cc1bc3d.pngThe Tax Cuts and Jobs Act provides extensive benefits to real estate investors while the poor, down-trodden art collector has seemingly received the short end of the stick. When Congress voted to maintain 1031 exchanges for real estate investors, these individuals were allowed to continue selling property free of taxes as long as they used the proceeds to purchase more property. Prior to the change in tax law, the loophole had been open to others, including car aficionados, franchisees, and, of course, art collectors. Christopher Pegg, senior director of wealth planning for California and Nevada at Wells Fargo Private Bank, noted the potential for wealthy investors to take advantage of these exchanges until their death, where they face no capital gains tax and can receive “that big basis step-up in the sky, and the tax is entirely avoided.” Though the argument for the art community to receive similar treatment under the tax law seems to be a petulant, “that’s not fair!” there are some potential negative implications for museums and domestic collectors.

See Paul Sullivan, How the Tax Code Rewrite Favors Real Estate Over Art, The New York Times, January 12, 2018.

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

February 6, 2018 in Current Events, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

Tax Reform Opens the Door for Multi-Purpose ILITs

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-06/01c8115d-0aa5-4ac5-acc1-a64de5a692f7.pngIrrevocable life insurance trusts (ILITs) have previously been used as the cornerstone of many estate plans. But with the passage of the Tax Cuts and Jobs Act, there are a plethora of changes affecting various facets of estate planning, and the traditional use of the ILIT is certainly among those numbered. Clients who were once focused on mitigating their estate taxes may now find themselves more concerned with income tax. The tax-favored envelope that is the permanent insurance policy may be more valuable to those clients who are now facing state and local tax deduction restrictions or capital gains costs. The time may have come for the standard ILIT to give way to a more multifaceted and robust vehicle, the Multipurpose ILIT (MILIT). A MILIT might contain a permanent life insurance policy, as would a standard ILIT, along with various additional assets. For the client, the MILIT eliminates the need for multiple trusts and may offer more benefits than its seemingly outdated cousin.

See Barry D. Flagg, Thomas Tietz, & Martin M. Shenkman, Tax Reform Opens the Door for Multi-Purpose ILITs, Wealth Management.com, January 29, 2018.

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

February 6, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax, Trusts | Permalink | Comments (0)

Monday, February 5, 2018

Clawback Under the New Tax Law: Part 2

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-05/2b986efa-a608-4de1-ad41-7b86165fc4a8.pngThe increased estate and gift tax exemption thresholds are set to expire in 2026. If this occurs, there is some potential for a lifetime gift “clawback” depending on how the IRS handles the situation. IRC Section 2001(g) indicates that the Secretary is responsible for issuing regulations to address the potential disparity a decedent may face between a lower estate tax exemption threshold in effect at his death and a higher lifetime gift exemption threshold, under which he gave gifts in excess of the estate tax exemption limits, in effect during his life. The IRS can handle this situation through a few different methods. How they choose to tackle the issue may create a considerable incentive for taxpayers to give gifts in excess of $5.5 million now, prior to the expiration of the current limits.

See James G. Blase, Clawback Under the New Tax Law: Part 2, Wealth Management.com, January 26, 2018.

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

February 5, 2018 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Saturday, February 3, 2018

Article on The Income Equality Case for Eliminating the Estate Tax

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-03/1209e640-af27-45d7-a5bb-403d4ff7c20c.pngDavid Herzig recently posted an Article entitled, The Income Equality Case for Eliminating the Estate Tax, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article:

The estate tax and income tax rules independently attempt to either promote or deter different behaviors. The interaction of these different rules often leads to disparate or unintended consequences to taxpayers: for example, achieving an overall lower effective tax rate by paying more estate tax to lower the income tax rate. This overlay of the estate tax rules on the income tax rules is a key problem at the core of our tax system. Yet, few scholars focus on this topic.

In this Article, I document the actual behavior of the trust and estate bar. By looking at how attorneys approach the intersection of estate and income taxes, I demonstrate deficiencies in the current scholarly belief, which is based largely on anecdotal information, that the wealthy have a preference for paying less or no estate tax. I show the real-world preferences that indicate wealthy taxpayers are paying high levels of estate tax to minimize the income tax incidents. After showing the shift of preferences and the resulting overall tax loss to the fisc, the Article then proposes useful policy solutions, such as elimination of the estate tax or using death as an income tax triggering event.

February 3, 2018 in Articles, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)