Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Friday, November 28, 2014

The Way Early 529


As college costs have spiked, anxious families are looking at strategies for helping their future children or grandchildren get an education.  One of theses strategies is to open a 529 college-savings plan and have it start growing years before the future student is born. 

Anyone can start a 529, which is funded with after-tax income; the fund’s earnings and principal will be untaxed as long as the money goes to expenses that qualify as higher education.  It is wise for parents with adult children to open a 529, as it helps jump start savings.  Furthermore, if parents subsequently transfer ownership of the account to their grown children, both generations can benefit from some gift-tax exemptions. 

In addition to increasing the amount of giving both sets of parents can do without owing gift tax, this can help wealthier grandparents reduce their estate below taxable level, especially in states such as New York and Pennsylvania, where estate-tax exemptions are much lower than the 2014 federal level. 

Starting a 529 plan when a child is born can mean years of lost earning potential.  A plan started with the maximum $14,000 initial gift, five years before a child is born, funded with $500 every month and earning interest at 3% compounded monthly, would yiled $226,784 by the child’s 18th birthday.  The same plan started at birth would yield $167,336.  While the future is unpredictable, a will can provide for an executor or trustee to carry out 529 plans using assets in a revocable trust. 

See Peter S. Green, The Way-Early ‘529’ Gift, The Wall Street Journal, Nov. 3, 2014. 

November 28, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts, Wills | 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)

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)

Tuesday, November 25, 2014

Article on Federal Inheritance Tax

Wendy GerzogWendy C. Gerzog (Professor, University of Baltimore School of Law) recently published an article entitled, What's Wrong With A Federal Inheritance Tax?, 49 Real Property, Trust and Estate Law Journal, no. 1, 163 (Spring 2014). Provided below is the article's synopsis:

Scholars have proposed a federal inheritance tax as an alternative to the current federal transfer taxes, but that proposal is seriously flawed. In any inheritance tax model, scholars should expect to see significantly decreased compliance rates and increased administrative costs because, by focusing on the transferees instead of on the transferor, an inheritance tax would multiply the number of taxpayers subject to the tax

This Article reviews common characteristics of existing inheritance tax systems in the United States and internationally--particularly in Europe. In addition, the Article analyzes the novel Comprehensive Inheritance Tax (CIT) proposal, which combines some elements of existing inheritance tax systems with some features of the current transfer tax system and delivers the CIT through the federal income tax system.

November 25, 2014 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, November 22, 2014

CLE on Tax Developments for Estate Planners

CLE Photo

The American Law Institute Continuing Legal Education (ALI CLE) is holding a CLE entitled, Recent Tax Developments for Estate Planners, on December 10, 2014 from 12:30 – 2:00 p.m. Eastern, available via telephone seminar or audio webcast.  Here is why you should attend:

Since the passage of the American Taxpayer Relief Act of 2012, plans to minimize estate taxes have been much less important for the majority of Americans. However, higher marginal income tax rates and the “Medicare” tax on net investment income can still negatively affect estates and beneficiaries.

As 2014 draws to a close, what recent tax developments should be considered by estate planners so that they can most effectively assist their clients with wealth management and estate planning? Join veteran estate planners with expertise in taxation issues for an enlightening discussion of caselaw and administrative and legislative changes that affect testators, grantors, and beneficiaries.

November 22, 2014 in Conferences & CLE, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Friday, November 21, 2014

2013 Estate Tax Tables

TaxesThe IRS has updated the SOI Estate Tax Data Tables to include 2013. The three tables (1) Selected Income, Deduction, and Tax Computation Items, By Tax Status and Size of Gross Estate, (2) Selected Tax Computation Items, by State of Residence, and (3) Charitable Bequests, by State of Residence, can be found here.

See Jiaqi Wang, IRS Released Statistics of Estate Tax Returns for Filing Year 2013, Wealth Strategies Journal, Nov. 13, 2014.

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

November 21, 2014 in Estate Administration, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 19, 2014

Recent Changes That Create Need For Married Couples to Update Wills

MarriedThere have been recent changes to tax laws that create the need for married couples to review their wills, especially provisions intended for tax planning purposes. Here are three major changes that create a need for a reread:

  1. Estate Tax Exemption. In the past 10 years the exemption amount has risen from $600,000 to a little over $5 million this year, changing considerations for estate planning since what may have been a taxable estate when the will was last reviewed may no longer be.
  2. Portability. Now that a surviving spouse can inherit the unused portion of their deceased spouse's exemption, will provisions creating a bypass trust may no longer be needed.
  3. Income Tax. Increased income tax rates create a change in considerations for whether bypass trusts will be beneficial, especially with the addition of the portability option.

See Kirk R. Wilson, Estate Tax Provisions for Married Couples in Recent Wills, Trusts May be Obsolete--Part I, Your Houston News, Nov. 14, 2014.

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

November 19, 2014 in Estate Planning - Generally, Estate Tax, Income Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 18, 2014

10 Worst States for Retirement


Many Americans look forward to living blissfully in retirement.  However, obstacles such as stagnant wages, rising living expenses, and inadequate savings force many people to make difficult decisions about their “golden years.” 

Location plays a large role in retirement planning since some states are better suited to offer desirable benefits to retirees.  MoneyRates examined the best and worst states for retirement, according to five major categories including: senior population, economics, crime, weather, and senior life expectancy.  Below are the ten worst states in America for retirees:

  1. Alaska. Because of its weather and bottom ranking economic factors, Alaska is the worst state in America for retirement. 
  2. Louisiana. This state has one of the smallest senior populations in the country due to a high crime rate and low life expectancy.
  3. Tennessee. Tennessee ranks low due to high crime and low life expectancy.
  4. Illinois. A weak labor market and high property taxes make Illinois a poor place for retirement. 
  5. Nevada. Violent crime per capita and a struggling economy make Nevada the fifth worst state in retirement for America.
  6. (tie) Georgia. Although Georgia ranks well for its climate, it is below average in every other category.
  7. (tie) Maryland. This state ranks poorly in economic factors due to a high cost of living that can deplete modest incomes and retirement accounts.
  8. (tie) New York. With a poor climate and economic factors such as high cost of living and high property taxes, New York is not an ideal place for retirement.
  9. Michigan. Although Michigan has an increasing growth rate of its senior population, the state ranks below average in every other category, especially with economic factors.
  10. Alabama. Alabama ranks poorly in life expectancy and crime. 

See Eric McWhinnie, 10 Worst States for Retirement Living, USA Today, Nov. 15, 2014. 

November 18, 2014 in Elder Law, Estate Planning - Generally, Estate Tax | Permalink | Comments (1) | TrackBack (0)

Monday, November 17, 2014

International Estate Planning


While estate planning is crucial for almost everyone, if you have international ties, you have even more reasons to take the time to carefully plan your estate.  Whether you are part of an international family, married to a non-citizen, or you live abroad, here are four reasons to look into international estate planning:

  1. Decrease your tax burden. Non-citizens of the United States must follow different estate tax and gift tax laws.  If you own property abroad, you could end up getting taxed twice, in two different countries.  These are just a few rules that illustrate why you should seek guidance on your international estate plan.
  2. Prevent confusion and delay. If you fail to plan your estate, the red tape could delay your loved ones in getting the support they need.  Worst case, it could prevent your loved ones from getting what you wished.
  3. Shield wealth and property. When you forego planning your estate, it is left in the hands of the government.  If you have international property, the future of your assets depends heavily on where they are located, and estate law can vary from country to country.
  4. Protect children. If you want your children to have a guardian who lives abroad, it is essential you plan your estate so your guardianship wishes are clear.  International families should appoint both a temporary and permanent guardian.

See Janet Brewer, Four Great Reasons For International Estate Planning, JD Supra, Nov. 17, 2014. 

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

Tuesday, November 11, 2014

New Book on Estate Tax and Movies

Art of the Estate Tax ReturnKeith Schiller's new book, Art of the Estate Tax Return, Second Edition-Estate Planning at the Movies, uses films to illustrate estate planning and tax concepts.  Provided below is the description of the book from Bloomberg BNA:

Art of the Estate Tax Return, Second Edition – Estate Planning at the Movies® provides in-depth tax analysis and strategic counsel, while offering the ultimate in readability, by connecting well-known motion pictures to practical estate planning and compliance. These connections create great reminders of significant strategies or law, lending humanity to technical issues, and making the tax law fun. 

Art of the Estate Tax Return will enhance your practice and enable you to potentially save your clients millions of dollars in estate taxes by presenting strategic analysis for preparation, presentation, and post-filing defense and advocacy with tax-saving results.

Underlying the cinematic connections, the author shares his best practice tips from a career of preparing, reviewing, and defending estate tax returns, and his greater than 25 years of teaching experience for tax professionals.

With a Foreword by former IRS Appeals Team Manager John Schooler, and an Afterword by Charles W. Morris, the former IRS Territory Manager, Estate and Gift Tax for the Western United States, Art of the Estate Tax Return unsnares the traps and explores the nuances of law and procedure that enter into the preparation and defense of Form 706, including:

  • Expanded coverage of portability elections
  • Illustrated estate tax returns for 2013
  • Maximizing valuation discounts and deductions
  • Protecting FLPs and FLLCs
  • Securing best appraisal results
  • Tips to avoid audits
  • Pointers on GST reporting
  • Cautions and help for fiduciaries
  • Warnings and opportunities from inconsistencies in the law
  • Strategies for audits and appeals
  • Comprehensive analysis
  • And much more!

November 11, 2014 in Books, Books - For Practitioners, Estate Planning - Generally, Estate Tax, Film | Permalink | Comments (0) | TrackBack (0)