Wills, Trusts & Estates Prof Blog

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

Tuesday, May 23, 2017

Article on Transfer to Limited Partnership Includible in Estate

LLP1Lewis J. Saret recently posted an Abstract entitled, Est. of Nancy H. Powell: Transfer to Limited Partnership Includible in Estate, Wealth Strategies Journal (2017). Provided below is the abstract:

On August 8, 2008, D’s son, J, acting on her behalf, transferred cash and securities to LP, a limited partnership, in exchange for a 99% limited partner interest. LP’s partnership agreement allowed for the entity’s dissolution with the written consent of all partners. Also on August 8, 2008, J, purportedly acting under a power of attorney, transferred D’s LP interest to T, a charitable lead annuity trust, the terms of which provided an annuity to a charitable organization for the rest of D’s life. Upon D’s death, T’s corpus was to be divided equally between D’s two sons. D died on August 15, 2008.
Held: D’s ability, acting with LP’s other partners, to dissolve the partnership was a right “to designate the persons who shall possess or enjoy” the cash and securities transferred to LP “or the income therefrom”, within the meaning of I.R.C. sec. 2036(a)(2).

Held, further, because D’s LP interest was transferred, if at all, less than three years before her death, the value of the cash and securities transferred to LP is includible in the value of her gross estate to the extent required by either I.R.C. sec. 2036(a)(2) or I.R.C. sec. 2035(a).

Held, further, neither I.R.C. sec. 2036(a)(2) nor I.R.C. sec. 2035(a) (whichever applies) requires inclusion in the value of D’s gross estate of the full date-of-death value of the cash and securities transferred to LP; only the excess of that value over the value of the limited partner interest D received in return is includible in the value of D’s gross estate. I.R.C. sec. 2043(a).

Held, further, J’s transfer of D’s LP interest to T was either void or revocable under applicable State law because D’s power of attorney did not authorize J to make gifts in excess of the annual Federal gift tax exclusion; consequently, the value of the 99% limited partner interest in LP, as of the date of D’s death, is includible in the value of her gross estate under I.R.C. sec. 2033 or I.R.C. sec. 2038(a).

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

May 23, 2017 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Saturday, May 20, 2017

10 Tips for Tumultuous Tax Times

RK_Post_-_Death_and_Taxes_1024x1024The only things that ever seemed to be certain were the inevitability of death and the persistent and ever-present burden of taxes. Now, taxes are coming into question (sort of). President Trump and the Republican-dominated congress are expected to change the laws concerning estate and gift taxes. Unfortunately, for estate planners, neither the extent nor the scope of these changes are actually known. John O. McManus, founder of an estate planning firm in New York, has some helpful strategies to deal with the uncertainty. McManus’ friendly tips push flexibility in planning and he says these strategies work in both the long and short term, and are beneficial for the mass affluent as well as the ultra-wealthy.

See Karen Demasters, Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now, Private Wealth, May 12, 2017.

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

May 20, 2017 in Current Events, Death Event Planning, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Friday, May 19, 2017

I'd Bet the Farm on It!

Farm-familyThe succession of the family farm has changed in the face of an increasingly mobile society. With more and more family members choosing alternative career paths, commodity volatility, increased regulations, a tighter lending environment, and liability for farm owners, the chosen successor for a family farm is integral to protecting the long-term viability of the business. Farming, especially on larger scales, requires knowledgeable, skilled leadership that not all beneficiaries are able to provide. With corporate and estate planning, a viable leader may be chosen from among willing and able family members; if needed, a successor may also be chosen from an outside source.

Aside from choosing a competent individual as a leader, the retention of key employees is another major concern. If the future of the farm becomes uncertain, highly qualified employees may take the disruption as a chance to find more stable employment. A lack of leadership or uncertainty may also be a cause of concern for suppliers, lenders, and customers. By having a well-defined plan for succession, potential problems among these groups may be mitigated or avoided entirely.

A clear and intelligent plan for succession also avoids intra-family litigation. Many family farms have fallen subject to lawsuits borne from family squabbles. These suits can negatively affect the land usage as parcels are divided among family members to resolve their disputes. Careful design for future land ownership may circumvent future litigation. Finally, a paramount concern, federal estate taxes. Properties valued over a set threshold may be subject to a 40% estate tax due within nine months of the decedent’s passing. This can be unduly burdensome for a grieving family without a succession plan. If unprepared, the beneficiaries of the estate may be forced to sell the land to any bidder in order to pay the taxes.

Farm families take pride in their land and it tends to form a part of the family’s identity. For continued prosperity, a comprehensive succession plan provides the best chance for the property’s future.

See E. Bradley Evans & Matthew W. Thompson, Succession Planning—Bet the Farm on It, Ward and Smith, P.A., May 12, 2017.

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

May 19, 2017 in Current Events, Death Event Planning, Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Thursday, May 18, 2017

ACTEC Annual Meeting Summary

CLEThe American College of Trust and Estate Council (ACTEC) is a nationwide organization consisting of nearly 2,600 lawyers. The central objective of the organization is to study and improve trust, estate and tax laws, procedures and professional responsibility. Recently, ACTEC held its annual meeting in Scottsdale, Arizona. A veritable oasis in the desert, Scottsdale is known for its spa resorts and expansive golf courses.

The topics covered at the annual meeting include:

  • Estate planning current developments over the last year
  • Trachtman lecture (by Hanson Reynolds) regarding end-of-life decisions
  • Planning Issues for S Corporations and C Corporations
  • Charitable bequests of retirement assets
  • Tips for estate and gift tax audits from trial lawyers' perspectives
  • Common reporting standard and FATCA
  • Community property in common law states
  • Trusts in divorce, and
  • Structuring settlement agreements

Steve R. Akers, Senior Fiduciary Counsel at Bessemer Trust, wrote a synopsis of his observations at the event. His musings can be found here.

May 18, 2017 in Conferences & CLE, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

The Flexible SLAT

Home-large-gumbyThe spousal lifetime asset trust (SLAT) is an excellent means for married clients with moderate to ultra-high net worth to gain planning flexibility and tax benefits in an uncertain and tumultuous estate-planning environment. The use of a SLAT enables clients to avoid probate, reduce estate taxes, and reduce capital gains on death tax. SLATs may also function as life insurance trusts and can be utilized to manage and protect life insurance proceeds. This is important given the central role life insurance takes in the estate and financial planning processes. These are among only a few of the benefits associated with SLATs, but they do require teamwork for proper optimization.

Wealth advisors should be included in order to manage securities both inside and outside the trust. These advisors should also be on the lookout for appreciated property swaps that may be advantageous. Estate planners are useful in growing assets inside the SLAT that are outside the client’s estate, and accountants should look to the SLAT to help the client avoid state income tax. While tax reform is currently nebulous at best, SLATs can serve clients as a flexible planning tool with a unique ability to meet their multifaceted goals.

See Andrew T. Wolfe & Martin M. Shenkman, SLATs Provide Flexible Plans for Many Clients, Wealth Management, May 15, 2017.

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

May 18, 2017 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Tuesday, May 16, 2017

Article on Deducting Attorney's Fees

Deduct attorney's feesWesley L. Bowers recently published an Article entitled, Decoding the Deduction: What’s the Right Form to Use for Professional Fees?, Tr. & Est. 30 (Apr. 2017). Provided below is an abstract of the Article:

Given our current tax environment, more and more estate planning and administration professionals are diving (often times, reluctantly) into the abyss of the income tax world. One of the more frequent questions asked by attorneys, CPAs and other professionals during an estate administration is: “Where should we deduct professional fees (attorney, CPA, appraisal, etc.): on Form 706 or Form 1041?” What seems like a simple question at first blush is often extremely complicated and takes you through a labyrinth of decision trees, regulations and case law.

The traditional answer of where to deduct professional fees was often to deduct them on Form 706, simply because more estates were subject to the estate tax in prior years when the exemptions were significantly lower, and the estate tax rate was traditionally much higher than an estate’s income tax rate. Now, however, this question has become even more complicated to answer due in large part to the proximity between the effective estate tax rate (currently, 40 percent) and an estate’s income tax rate (currently, a top bracket of 39.6 percent, with a potential 3.8 percent net investment income tax). In addition, the introduction of portability has changed the traditional estate-planning model, and more estate tax returns are now filed when not otherwise required to take advantage of the portability features. With so many recent changes and a myriad of possible planning structures, it’s no wonder many are confused as to how to answer a seemingly simple question: “Where should I deduct attorney’s fees?”

May 16, 2017 in Articles, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Monday, May 15, 2017

Estate Planning Strategies for Uncertain Tax Reform

Tax reformYou often hear the only things certain in life are death and taxes, but now, taxes might even be in question. President Trump and the Republican Congress are expected to revamp taxes, but no one is sure what that might entail. But while Americans wait for the tax reform, there are some strategies for estate planners to follow. Accordingly, you should continue to encourage your clients to make annual gift tax exclusions, while contributing to 529 Plans as well as educational institutions and medical facilities directly. Implementing grantor retained annuity trusts (GRATs) will also help, as interest rates remain low, allowing clients to pass investment assets to their children without worrying about the gift tax exemption. Further, installment sales to a GRAT will not realize capital gains taxes. Additionally, family limited partnerships remain a viable tax minimization strategy to centralize investments, provide asset protection, and expand family investment opportunities. Community property trusts allow the surviving spouse to enjoy a step-up in basis, further creating an opportunity for the spouse to sell assets without paying capital gains taxes. Overall, implementing flexible planning into an estate plan will allow your clients to better plan for their future in uncertain times.

See Karen Demasters, Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now, Private Wealth, May 12, 2017.

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

May 15, 2017 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Sunday, May 14, 2017

Onist: Technology Responding to the Great Wealth Transfer

OnistCreating an effective wealth transfer plan ensures that a client’s legal, financial, tax, and emotional issues are balanced. Onist, a new financial management platform, is giving estate planners a consolidated view of their clients’ financial life, including an inventory of estate assets and values as well as ownership pertaining to those assets. Onist helps identify and track all beneficiaries, while allowing easy access and management to important legal, tax, and financial documents, saving time and promoting seamless interactions with clients.

May 14, 2017 in Current Events, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Saturday, May 13, 2017

Article on Optimal Terms for QPRTs

QprtsTerence Condren recently published an Article entitled, Selecting the Optimal Term for a QPRT: Maximize the Retained Interest and Minimize the Risk of Dying, Tr. & Est. 24 (Apr. 2017). Provided below is an abstract of the Article:

A qualified personal residence trust (QPRT) can be a tax-efficient way of transferring a primary residence or vacation home to the next generation. Designing an effective QPRT involves making many important and complex decisions, but selecting the initial term of the QPRT may be the most critical. The longer the term, the greater the risk the grantor will die during the term, and the QPRT won’t achieve any estate tax savings. If the term is too short, then the QPRT will generate lower estate tax savings than it could have delivered had the term been longer. Here’s one method for calculating the mathematically optimal term of a QPRT.

May 13, 2017 in Articles, Estate Planning - Generally, Estate Tax, Trusts | Permalink | Comments (0)

Friday, May 12, 2017

Article on IRC Section 6166 for the Family Business

Section 6166Jessica Galligan Goldsmith & David Y. Choi recently published an Article entitled, Saving the Store: Lifetime Planning for Business Owners Using IRC Section 6166, Tr. & Est. 14 (Apr. 2017). Provided below is an abstract of the Article:

Internal Revenue Code Section 6166 is one of the most favorable sections for taxpayers who own closely held businesses. Attorneys who represent business owners must understand the technical rules that apply with respect to IRC Section 6166. Many decedents who could qualify for deferral of federal estate tax under Section 6166 (6166 deferral) will miss this opportunity solely due to a lack of lifetime planning. Without Section 6166 planning, a family business may need to be sold to pay estate taxes.

Section 6166 provides a statutory right for an executor of a qualifying estate to make one of four different elections (each a 6166 election) on a timely filed federal estate tax return, including valid extensions thereto. A 6166 election extends the time for paying the federal estate tax on a decedent’s closely held business interests. As long as an estate makes a timely election under Section 6166, the Internal Revenue Service can’t deny the extension of time to pay such federal estate tax that would otherwise be due by the payment date.

May 12, 2017 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)