Wills, Trusts & Estates Prof Blog

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

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Friday, March 27, 2015

Effect of Increased Estate Tax on Businesses of Minorities, Women

Tax1As I have previously discussed, if passed the president's budget proposals could raise the U.S. estate tax to the highest in the world. This increase could put a disproportionate burden on businesses owned by minorities and woman. One worried female business owner testified last week at a House Ways and Means Committee hearing that her business will suffer from wage and employee cuts, and a forced partial sell after her father dies.

See Melanie Batley, The Hill: Estate Tax Hike to Hurt Minority, Female-Owned Firms, Newsmax, March 24, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

March 27, 2015 in Estate Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, March 26, 2015

Covering Your Basis

InvestmentWhen selling an asset such as a stock, you owe capital gains tax on the difference between the sale price and what you paid for it, which is your cost basis.  Yet, if you inherit certain assets, including marketable securities, you can “step up” their tax basis to whatever they were worth at the benefactor’s death.  This means highly appreciated inherited stock can be sold immediately with no capital gains, or later, when all the gains before you inherited are not counted.

Step-up became a more significant concept after the legislative deal Congress passed in 2013, which made permanent a generous exclusion from estate and gift tax.  In the same tax bill, Congress raised the top rate on long-term capital gains. 

There are several ways to minimize capital gains tax.  One includes making charitable donations.  For gifts of marketable securities to a public charity, donors are entitled to an income tax deduction for up to 30 percent of adjusted gross income if the stock is held for more than a year. 

Another tax-planning tool is to convert a Traditional IRA to a Roth.  Although you must pay income tax on the amount you are converting, after that no income tax is assessed on distributions by you or your heirs.  Moreover, any withdrawals by you or your heirs do not get added to taxable income. 

Finally, married couples who live in a community property state have a basis advantage.  Most of what you acquire once you are married and living in a community property state, you and your spouse are each considered a half-owner.  Thus, when the first spouse dies, both halves of the property get a step up in basis, effectively minimizing capital gains tax if the surviving spouse sells the property.

See Deborah L. Jacobs, What Every Investor Needs to Know About Basis, Morningstar, March 25, 2015.

March 26, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

House Committee Approves Estate Tax Repeal

CongressA bill approved Wednesday by the House Ways and Means Committee would repeal the 99-year-old U.S. estate tax. 

The legislation was backed on a 22-10 party-line vote and would benefit about 5,500 families who pay the tax each year plus thousands of others who organize their finances to avoid the 40 percent tax on their estates.  The caveat: it would deprive the U.S. government of $269 billion in revenue over a decade. 

Despite passing in the Ways and Means Committee, the measure will likely not become law under President Barack Obama, who would like to impose higher estate taxes.  Rather, the bill places a marker for business groups that have been pressing Congress to act and could possibly foreshadow what Republicans might do if they control both Congress and the White House in 2017. 

The bill, H.R. 1105, is sponsored by Texas Republican Kevin Brady and would levy a gift tax on transfers made during one’s lifetime.  The existing $5.43 million lifetime exemption would remain, and the rate would be reduced to 35 percent from 40 percent.  Under Brady’s bill, there would be no estate tax, but heirs would still owe capital gains taxes on the amount exceeding $20 million.

See Richard Rubin, Wealthiest Win as U.S. House Panel Advances Estate-Tax Repeal, Bloomberg Business, March 25, 2015.

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

March 26, 2015 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 25, 2015

AICPA Letter Recommends Longer Filing Period for Portability Election

WriteThe AICPA Tax Executive Committee is requesting relief for surviving spouses seeking to elect portability be provided by the IRS. In a recent letter the AICPA addresses the continuing problem of unawareness of portability and recommends a 15 month period for filing to elect portability from the time of the spouse's death if the estate would not be required to file a Form 706 for a purpose other than electing portability. The letter also recommends the creation of a short Form 706-EZ for estates only electing portability.

See Alistair M. Nevius, AICPA Asks IRS for Portability Relief for Surviving Spouses, Journal of Accountancy, March 20, 2015.

 

March 25, 2015 in Estate Administration, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 24, 2015

Providing for a Surviving Non-U.S. Citizen Spouse

Tax4The estate tax on a deceased spouse's estate can be burdensome for a surviving non-U.S. citizen spouse as the unlimited marital deduction will not apply. A Qualified Domestic Trust (QDOT) can help by deferring the estate tax liability, but limits accessibility of the funds for the non-U.S. citizen spouse. Another option is a life insurance policy, which can assist the surviving spouse with paying the estate tax, but will be counted as an asset in the estate.

See Mike Thaxton, 2 Ways to Help Protect Non-U.S. Spouses From Estate Tax Liability, Life Health Pro, March 17, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

March 24, 2015 in Estate Planning - Generally, Estate Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, March 20, 2015

Laws of Inheritance?

Estate tax

During the Congressional hearing on Wednesday that examined the estate tax, Democratic Representative Linda Sanchez offered a baffling defense of the tax that sometimes places an unbearable burden on family farms and businesses. 

Sanchez reasoned that since people receiving food stamps must pass drug tests or meet work requirements to receive taxpayer dollars, it is only fair that those “lucky” enough to inherit wealth should have to do something to earn it, in this case, pay a tax.  “Why is it that [a single mother] should be drug tested, which is an unrelated requirement to receive food assistance, to make sure that her family has enough to eat,” she asked, “and people who are lucky enough to inherit millions of dollars are literally required to do nothing to the federal tax benefit with their inheritance?”

Sanchez acknowledged that Americans should value hard work, but lamented the “paradox” that occurs when individuals want to work hard so they can accumulate wealth to live off of in retirement and pass on to their children.  These remarks were made after hearing a witness describe the heartbreak her family is enduring after watching her father try to find an alternate route in passing his business to his children without breaking it up in order to pay the death tax. 

See Rachel Stolzfoos, Congresswoman Says Kids Should Be Drug-Tested Before They Can Inherit, The Daily Caller, March 18, 2015.

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

March 20, 2015 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Possible Estate Tax Increase Coming

TaxIn the last 15 years, 13 countries have repealed their estate or inheritance taxes, but in the U.S. the estate tax may be increasing rather than on a path to repeal. If step up basis is ended per the President's proposal, the U.S. estate tax rate could move from the 4th to the 1st highest in the world.

See Robert W. Wood, U.S. Estate Tax Is 4th Highest At 40%, But Obama Wants To Make Us #1....At 68%, Forbes, March 18, 2015.

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

March 20, 2015 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2015

Congress Considers Estate Tax

Congress

After a member of Congress introduced legislation to repeal the estate tax, a House subcommittee held a hearing Wednesday on the subject.

Representative Kevin Brady (R-Texas), introduced the Death Tax Repeal Act of 2015 last month.  The bill would amend the Tax Code to repeal both the estate tax and the Generation-Skipping Transfer Tax.  Proponents of the bill argue that the estate tax hurts small businesses, family farmers and ranchers who hope to pass on their businesses to the next generation.  Yet, opponents point out that the estate tax only affects a few families, especially after the exemption amount was raised to $5 million. 

Ray Madoff, a professor at Boston College Law School, believes that Congress should not be hasty when it comes to repealing the estate tax.  He says that the estate tax promotes fairness in the tax system and provides an important source of revenue for the government.  According to the most recent estimates, the estate tax will generate about $294 billion over the next ten years.

See Michael Cohn, Congress Mulls Repeal of Estate Tax, Accounting Today, March 18, 2015.

March 19, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax | Permalink | Comments (0) | TrackBack (0)

Estate of Art Collector Sues Estate Planning Attorney

Gavel2The attorney that was hired to create a residual charitable trust for late art collector Robert Ellsworth has been sued by the executor of Ellsworth's estate.  The executor, Masahiro Hashiguchi alleges that attorney George L. Bischof was negligent in the creation of the trust and that the trust failed, which resulted in the estate facing over $25 million in estate taxes due to the trust not qualifying as a charitable remainder trust.

See Rozalia Jovanovic, Robert Ellsworth Estate Sues Attorney Over $25 Million Tax Blunder On Eve Of Christie's Sale, Artnet News, March 18, 2015.

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

March 19, 2015 in Estate Planning - Generally, Estate Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Avoiding the IRA "Double Tax"

Tax CutWhen an IRA account holder dies, their estate may be facing the "double tax" of both federal income and estate taxes on the IRA, as well as possible state income and estate taxes. A possible solution to the heavy taxes is designating a charity as the beneficiary.

See  Russell E. Towers, How to Eliminate the "Double Tax" at Death, Life Health Pro, March 16, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

March 19, 2015 in Estate Planning - Generally, Estate Tax, Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)