Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Wednesday, March 4, 2015

Executors Beware: A Cautionary Tale

Last will and testament

In a tale of caution about being an executor, the cast includes a 73-year-old homemaker named executor of a nonagenarian cousin’s will, an attorney battling brain cancer, seven distant relatives and an IRS bill for $1.2 million in penalties and interest for failure to file an estate tax return and pay taxes on time. 

In an appeal to the U.S. Court of Appeals for the Sixth Circuit, the executor is trying to recover the $1.2 million from a series of complex factual circumstances.  The question is whether her failure to file the return and pay the tax on time was due to reasonable cause or willful neglect.

The details of this story will likely make you think twice about whom you appoint as executor of your will.  While many people hire estate attorneys to do the work and appoint family or friends as executors, it is ultimately the executor who bears the responsibility to make sure everything is done on time. 

“Reliance on counsel cannot constitute reasonable cause for the late filing and payment of taxes.”  Thus, it is ever important as an executor to read your basic duties and understand all of your responsibilities. 

See Ashlea Ebeling, The Executor’s $1.2 Million Mistake, Forbes, March 4, 2015.

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

March 4, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Professional Responsibility, Wills | Permalink | Comments (0) | TrackBack (0)

CLE on Planning Techniques for Large Estates

CLEThe American Law Institute Continuing Legal Education (ALI CLE) is presenting a CLE entitled, Planning Techniques for Large Estates, on April 8 – 10, 2015 in Scottsdale, AZ and via webcast.  Here is why you should attend:

 Planning for large estates continues to be a technically demanding and dynamic area of practice. Don’t miss the best opportunity in 2015 to fine tune your knowledge and stay up-to-date! 

Attend this highly-rated course and get the latest information and planning techniques specifically for large estates. Learn, network, and strategize with your peers and a highly experienced faculty of trust and estate practitioners from across the country.

Featuring in-depth discussions of estate and gift tax issues and planning techniques, this year’s topics include:

  • business succession planning
  • charitable planning issues
  • legislative developments and outlook
  • remainder interest purchase planning techniques
  • postmortem estate planning
  • valuation issues
  • ethics and privileges
What You Will Learn

Get the tools you need to advise your clients on the latest wealth planning and tax strategies. Led by a nationally recognized faculty of trust and estate experts, this advanced course addresses the most sophisticated problems and considerations unique to planning large estates.

Whether you are a new or returning attendee, this program will keep you on the leading edge of wealth planning and estate practice. New topics this year include:

  • Business Succession Planning: Keeping It in the Family
  • Striking the Balance: Fiduciary Income, Net Investment Income, Capital Gains, and Other     Non-Transfer Tax Consequences of Transfer Tax Planning
  • Generation Skipping Transfer Tax Planning
  • Legislative, Valuation, and Other Developments 2015
  • Creative Uses of Remainder Interest Purchase Planning Techniques
  • A Potpourri of Charitable Planning Issues (and Traps) You Might Have Never Thought About Before

Discussions are based on changing fact patterns and solutions, rather than simply principles of law or statutory provisions. Each topic is explored in depth, presenting key issues, alternative approaches, and practical planning strategies.

March 4, 2015 in Conferences & CLE, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, February 26, 2015

Accelerated Gifting

GiftsThe current estate tax climate has created a decreased focus on estate tax in estate planning, with the most recently available statistics showing that 99.7 percent of those who died in 2012 had estates that were below the exemption amount and the states that have an estate or inheritance tax only make up 38 percent of the U.S. population. This lowered estate tax focus has expanded charitable gift planning to include addressing concerns such as income tax, effective philanthropy, and asset protection. One way of addressing these concerns is through accelerating gifting by creating a Charitable Remainder Unitrust funded by appreciated securities or starting an endowment fund.

See Robert F. Sharpe, Jr., Making Gifts Sooner Than Later . . . Accelerating Charitable Bequests, Wealth Management, Feb. 23, 2015.

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

February 26, 2015 in Estate Planning - Generally, Estate Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 25, 2015

Pending Tax Cases Garner Attention at Heckerling

Tax3As I have previously discussed, tax issues were a major focus of this year's 49th Annual Heckerling Institute on Estate Planning. Two ongoing tax cases involving the IRS and trusts were part of that tax minded focus. The two cases are Estate of Donald Woelbing v. Commissioner and Estate of Marion Woelbing v. Commissioner, which both involve valuation of a promissory note and stock sold to a trust, and the applicability of IRC Sections 2036 and 2038.

See Kevin Matz, A View From the Audience at Heckerling: Part II, Wealth Management, Feb. 23, 2015.

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

February 25, 2015 in Estate Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, February 23, 2015

Income Tax and Flexible Strategy Were Focus at Heckerling Institute

Estate PlanningThe most recent Heckerling Institute on Estate Planning, which marked 49 years of the Institute, focused on the importance of income tax in estate planning. An additional focus was on minimizing state estate taxes. With the focus on taxes, which are a quickly changing landscape, a flexible approach to estate planning that considered individual situations was highly preferred.

See Kevin Matz, A View From the Audience at Heckerling: Part I, Wealth Management, Feb. 18, 2015.

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

February 23, 2015 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, February 22, 2015

Attempt to Avoid Estate Tax Blocked By Judge


A Brooklyn Surrogate judge rejected the petition of an heir who sought to disclaim her infant’s interest in a deceased grandparent’s estate in order to avoid a large estate tax liability. 

When Sharon Lindsay died intestate, her property went to her husband, son and daughter, Kimberly Friedman.  Lindsay left approximately $6.25 million to be shared among her immediate family members, but due to New York estate tax law, Friedman’s and her brother’s share would be subject to a $200,000 tax liability.  The share allotted to Lindsay’s husband would not be taxed because of the marital exception.

Friedman and her brother decided to allow their father inherit the entire $6 million estate tax free by renouncing their share of the estate.  Yet, the legal glitch in their tax avoidance plan was Friedman’s infant daughter, who would inherit Friedman’s share if Friedman disclaimed her own interest.  Thus, Friedman would have to renounce her share of the estate as well as her daughter’s interest to have the desired tax effect.

Although New York courts have granted the renunciation of an infant’s right to an inheritance, the court in Brooklyn held that the best interest of the child must be a determining factor.  Since it was unclear from the court record whether Friedman and her brother had an agreement with their father to share in the $6 million after all parties renounced their share, the judge was unwilling to take chances with the child’s future inheritance.  The possibilities of Friedman’s daughter obtaining no inheritance on account of her mother’s renunciation could not be ignored in order to receive a tax benefit. 

See Charisma L. Troiano, Brooklyn Judge Blocks Heir’s Attempt to Avoid N.Y. Tax on $6M Estate, Brooklyn Daily Eagle, Feb. 21, 2015.

February 22, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Intestate Succession | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 17, 2015

Tax Issues When Closing An Estate

Estate tax return

When a loved one dies, the resulting tax issues must be handled.  The person to handle these issues is typically identified in the decedent’s will as executor of the estate.  However, if there is not a will, the probate court will appoint someone to be the administrator.

An executor’s job is to identify the estate’s assets, pay off its debts and then distribute whatever is left to the rightful heirs and beneficiaries.  He or she is also required to file any necessary tax returns and pay taxes.  If this is handled incorrectly, the IRS can come after the executor personally for tax underpayments.  Below are four major steps to be considered:

  1. Filing the Final 1040.  The 1040 covers the period from Jan. 1 through the date of death.  If the decedent was unmarried, the final 1040 is prepared in the usual fashion.  When there is a surviving spouse, the final 1040 can be a joint return filed as if the decedent were still alive.  Also, look out for medical expenses, as large uninsured medical expenses must be treated differently for tax purposes. 
  2. Filing the Estate’s Income-Tax Return.  Once the individual has died, any income generated by his or her holdings after death is now part of the estate and that income is subject to taxes. 
  3. Filing the Estate Tax Return.  The federal estate tax return is filed on Form 706.  If the decedent did not make any sizable gifts before dying, no estate tax is due and no 706 form is required.  If sizable gifts were made, anything over $14,000 is added back to see if the estate tax exemption is surpassed. If so, then there will be a 40% federal estate tax on the excess. 
  4. Miscellaneous Details.  If you’ll be filing Form 1041 and/or Form 706, you need to get the estate a federal employer identification number (EIN). Next, you should file Form 56 (Notice Concerning Fiduciary Relationship), which notifies the IRS that you’ll be acting on behalf of the estate regarding tax matters.  You should also open a checking account in the name of the estate with funds transferred from the decedent’s accounts.  The executor has the legal power to do this.

See Bill Bischoff, 4 Tax Issues to Consider When You Close an Estate, Market Watch, Feb. 17, 2015.

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

February 17, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Friday, February 13, 2015

Choosing A Trust


Trusts can range from simple to extremely complex, and are a standard tool in the anti-estate-tax arsenal.  The only rule is that if the trust benefits a spouse, “you must cause the trust to be included in the second spouse’s estate, for estate-tax purposes.”  If it is not included in the second spouse’s estate, the assets would have the same basis as at the first spouse’s death.  Trust options include, but are not limited to:

  • Credit Shelter Trust.  If, between the first spouse’s death and the second, the estate is likely to grow beyond what the portability will shelter, experts suggest that members of a couple leave everything outright to the surviving spouse, but put a provision in the will saying that disclaimed assets must pass into a credit shelter trust.  This makes certain the estate-tax exemption is in place.
  • Clayton QTIP Trust.  Clients who want to leave assets into trust should use a Clayton QTIP trust.  “It’s just like an ordinary QTIP, but to the extent that you do not make a QTIP election on the assets sitting inside the trust, the unelected assets pour over automatically into a credit shelter trust.”
  • Irrevocable Life Insurance Trust.  Life insurance can help beneficiaries pay estate taxes, thus, when the death benefit is paid to a trust instead of an estate or individual, it stays outside the estate’s taxable value. 
  • Charitable Remainder Trusts.  “Assets can pay to a client for life, to children for life, and to grandchildren for a period of time, and then go to a charity.”

See Ingrid Case, Which Trust to Use? Financial Planning, Feb. 5, 2015.

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


February 13, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Thursday, February 12, 2015

Greenbook Proposals Target GRATs

Tax3The  Treasury Department's General Explanation of the Administration's Fiscal Year 2016 Revenue Proposals, or Greenbook, released earlier this month on February 2, echoed goals and concerns seen in previous year's Greenbooks from the Obama Administration, but with more bite. The 2016 Greenbook more aggressively attacks grantor retained annuity trusts (GRATs) through proposals that would both increase the market and mortality risks of GRATs. The proposals would limit the use of short-term GRATs, by requiring a minimum 10 year term and eliminating the ability to have a zero remainder interest.

See James Dougherty & Eric Fischer, President Obama "Steps Up" Attack On Estate Planning Techniques, Wealth Management, Feb. 11, 2015.

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

February 12, 2015 in Estate Planning - Generally, Estate Tax, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 10, 2015

How the President's Tax Proposals Are Affecting Estate Planning

Estate tax2

In President Obama’s proposal for the fiscal year 2016 budget, he keeps many of his past proposes that include restoring transfer taxes and curtailing various estate planning techniques.  The President is also introducing some bold, new ideas.  Some of the proposals in the budget that would affect estate planning include:

  • Eliminating the Stepped-Up Basis at Death and Treating Transfers of Appreciated Property as Sales.  Under this new proposal, the donor or deceased owner of an appreciated asset would realize a capital gain at the time the asset is gifted or bequeathed to another.  The gain would be taxable income to the donor or the deceased’s estate. 
  • Restoring the Estate, Gift, and Generation-Skipping Transfer Tax.  This proposal has been on the President’s radar for quite some time.  In 2009, the top tax rate was 45%. The exemption amounts were $3.5 million for estate and GST taxes, and $1 million for gift taxes, with no indexing for inflation. Portability of the deceased spouse’s unused estate and gift tax exemptions would remain available. 
  • Restrictions on Grantor Retained Annuity Trusts (GRATs).  This would require GRATs to have a minimum ten-year term and a maximum term of the annuitant’s life expectancy plus ten years.  Moreover, the proposal would also require that a GRAT’s remainder interest at the time of creation have a minimum value of the greater of 25% of the value of the assets contributed or $500,000.
  • Expanding the Definition of “Executor.”  The Tax Code would expressly define an executor as applicable for all tax purposes, including authorization for the executor to handle the decedent’s pre-death tax liabilities.
  • Extending Liens on Estate Tax Deferrals for Certain Estates.  For estate tax deferrals where the estate consists largely of an interest in a closely held business, the proposal would extend the §6324(a)(1) estate tax lien through the entire deferral period, instead of the current ten-year period from the date of death. 

See Michelle L. Vesole, So Much for a Permanent Estate Tax Regime: The President’s Tax Proposals Affecting Estate Planning, Bloomberg BNA, Feb. 9, 2015.

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

February 10, 2015 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)