Wills, Trusts & Estates Prof Blog

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

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Friday, October 24, 2014

CLE on Recent Tax Developments for Estate Planners

CLEThe American Law Institute Continuing Legal Education (ALI CLE) is presenting a CLE entitled, Recent Tax Developments for Estate Planners, Wednesday December 10, 2014, 12:30 – 2:00pm Eastern, online and by phone. 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.

What You Will Learn

Fellows of The American College of Trust and Estate Counsel will discuss the most recent cases, rulings, and other federal tax developments that are likely to be of interest to estate planners across the country.

Particularly emphasized will be how practitioners will want to incorporate these developments into the practice to avoid problems and take advantage of opportunities. Any year-end sensitive topics will also command center stage.

Questions submitted during the program will be answered live by the faculty. In addition, all registrants will receive a set of downloadable course materials and free access to the archived online program.

October 24, 2014 in Conferences & CLE, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 21, 2014

Haunting Life Insurance Mistakes


With Halloween right around the corner, parents and grandparents are usually focused on costumes and candy rather than life insurance policies. 

Life insurance can serve multiple purposes, and for most people is a tool for income replacement.  Often a term-life policy, which provides a preset death benefit when the insured person dies, is all that is needed.  Unfortunately, this is not enough to completely forget about the policy.  Below are some of the costly life insurance pitfalls that haunt many of us:

  • Rate Increases. With a level premium, term-life policy, you are guaranteed that the cost of the plan will not go up during the initial coverage period.  After that, be aware.  When the policy is up, you could get an invoice for the latest premium that is many multiples of what you had previously been paying. 
  • Affinity Groups. Some professional associations provide life insurance to their members at group rates. However, the price is not necessarily less than the open market.  There are also hidden costs that could surprise you too.
  • Beneficiary Designations. It is vital you keep beneficiary designation forms up-to-date.  For example, make sure to file an amended form if you get married or divorced or if your spouse dies. 
  • Estate Tax. If you are the insured and the policy owner, the proceeds will be considered part of your taxable estate.  Hence, those funds are added to everything else you leave behind.  If the total is more than the tax-free amount and you leave it to anyone except your spouse or charity, it will be subject to estate tax.  You can avoid estate tax on life insurance proceeds is to designate a family member who will receive the proceeds of the policy the owner. 

See Deborah L. Jacobs, Five Life Insurance Mistakes That Can Haunt You, Forbes, Oct. 20, 2014.

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

October 21, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Monday, October 20, 2014

Treasury Report Asks IRS to Write Clearer

WriteThe Treasury Inspector General for Tax Administration has written a report that calls on the IRS to use clearer writing in letters and notices that are more understandable to taxpayers. As the report points out, not only does this request make sense, but is also the law under the Plain Writing Act of 2010. In addition to identifying the existing problems of writings for the IRS being difficult to understand, including not defining terms such as “Tax Lien,” it also included recommendations for creating processes to monitor and check the writings for plain language requirements prior to being sent out, and increasing training for IRS technical writers. The IRS responded that it has put in considerable effort to produce clear writing, and agreed to address three out of four of the recommendations in the report.

See Michael Cohn, IRS Urged to Use Plainer English, Accounting Today, Oct. 14, 2014.

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

October 20, 2014 in Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, October 16, 2014

Now's the Time for a Charitable Lead Trust

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Wealthy families who wish to give to charity while minimizing gift and estate taxes should consider a charitable lead trust (CLT).  These trusts are very effective in a low-interest-rate environment, and although interest rates have gone up in recent years, they still remain very low.

A CLT provides a regular income stream to one or more charities during the trust term, after which the remaining assets pass to your children or other noncharitable beneficiaries.  If your beneficiaries are able to wait for several years before receiving their inheritance, a CLT is a great planning tool.  This is because the charity’s upfront interest in the trust reduces the value of your beneficiaries’ interest for gift or estate tax purposes.

There are two types of CLTs: the first is a charitable lead annuity trust (CLAT), which makes annual payments to charity equal to a fixed dollar amount or a fixed percentage of the trust assets’ initial value.  The second is a charitable lead unitrust (CLUT), which pays out a set percentage of the trust assets’ value, recalculated annually.  CLATs are most effective when interest rates are low because when you fund a CLAT, you make a taxable gift equal to the initial value of the asset you contribute to the trust, less the value of all charitable interests.  If a CLAT is appealing, the sooner you act, the better.

See E. Hans Lundsten and Joseph Marion, III, Now’s the Time for a Charitable Lead Trust, JD Supra.   

October 16, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 15, 2014

Gift Tax Basics

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The federal government limits the amount of assets that can be transferred from one person to another in a given year without tax consequences.  Transfers of assets or property above a certain amount are subject to the “gift tax.”  The annual gift-giving exclusion is $14,000 for individuals and $28,000 for married couples. 

What happens if you go over this amount?  Any year in which you exceed the annual gift tax exclusion amount, you are required to file IRS Form 709 as part of your federal income tax return.  This alerts the IRS that you have gone over your annual allotment of gift-giving and subsequently reduces the amount of your lifetime gift tax exemption. 

Although your income tax bill is unlikely to be affected by financial gifts, they could have a financial impact on your estate after you die.  This is because the amount of lifetime gifts you have made over and above your annual gift exclusion determines whether or not your estate will be subject to the estate tax.  When making financial gifts, each individual can take advantage of the unified credit, which applies the lifetime gift tax exemption to estate taxes.  This means that as long as gifts made both during one’s lifetime and after death do not exceed a specified amount, they will not be subject to taxes. 

Fortunately, for 2014, the first $5.34 million of an individual’s estate is exempt from estate taxes.  This means that, unless you have an estate larger than that amount or you have substantially exceeded the annual gift tax exclusion over your lifetime, you will likely owe nothing in taxes.  Anything above $5.34 million limit is taxed at 40% and is portable between spouses. 

See Adam Zoll, Gift and Estate Taxes: Why You Might Never Owe a Penny, Morningstar News, Oct. 10, 2014. 

October 15, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 14, 2014

The Crummey Trust: Not So Crummy


Traditionally, estate-planning trusts contained “Crummey” withdrawal powers to ensure that contributions qualify for the annual gift tax exclusion.  Today, the exclusion allows you to give up to $14,000 per year, and $28,000 for married couples, to any number of recipients. 

Although fewer people must worry about gift and estate taxes, for many, the annual exclusion is still an important estate planning strategy.  Consequently, Crummey powers are still relevant and useable. 

There are two important reasons to make annual exclusion gifts: if your wealth exceeds the exemption amount and if annual gifting guarantees that the amounts you give are permanently removed from your taxable estate. 

The annual exclusion is obtainable only for gifts of “present interests.”  However, a contribution to a trust is a future interest.  Thus, to bypass this obstacle trusts provide beneficiaries with Crummey withdrawal powers. These powers give beneficiaries the right to withdraw trust contributions for a limited period of time (30-60 days), making it possible to convert a future interest into a present interest, even if the withdrawal rights are never exercised. 

A trust must give beneficiaries real withdraw powers in order to effectuate Crummey powers.  This means you cannot have an agreement with your beneficiaries—express or implied—that will not exercise their withdraw rights.  The trust should also contain sufficient liquid assets so beneficiaries can exercise their withdraw rights.

See E. Hans Lundsten and Joseph Marion, III, The Crummey Trust: Still Relevant After All These Years, Insight on Estate Planning, October/November 2014. 

October 14, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, October 11, 2014

Conference on Tax and Estate Planning

CLEThe University of Notre Dame Law School is sponsoring the Fortieth Annual Notre Dame Tax & Estate Planning Institute on November 13-14, 2014. Provided below is the program description:

The 40th Annual Notre Dame Tax and Estate Planning Institute will take place on November 13th and 14th, 2014, in South Bend at the Century Center on the banks of the St. Joseph River in downtown South Bend, Indiana, at 120 South St. Joseph Street. South Bend uses Eastern Time (same as New York City)

The 40th Annual Institute will present topics relevant for all individuals, even those not exposed to the estate tax because of the high exemptions. Several sessions are designed to evaluate financial products and planning techniques so that one can better understand and evaluate these products and proposals in determining not only the tax and financial advantages they offer, but also their limitations. In addition, the Institute offers topics not found in most estate planning CE programs such as protecting the elderly from scams and exploitation. As part of the objective of refreshing areas that can expand one’s practice, a session will review the income tax consequences of debt cancellation, foreclosures, and debt restructuring. Recognizing the importance of the income tax, the Institute will continue to devote sessions to income tax planning techniques clients can use immediately.

October 11, 2014 in Conferences & CLE, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Friday, October 10, 2014

Article on Estate of Adell

Kerry A. Ryan (Saint Louis University School of Law) recently published an article entitled, Valuation Lessons From Estate of Adell, 144 Tax Notes 1455 (Sept. 22, 2014). Provided below is the abstract from SSRN:

In Estate of Adell, the Tax Court determined that the correct value of a decedent’s interest in a closely held corporation was the figure reported on the original estate tax return. The court rejected alternative values as either using the incorrect valuation method or failing to account for the significant value of a key employee’s personal goodwill.

October 10, 2014 in Articles, Estate Planning - Generally, Estate Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 8, 2014

Pennsylvania to Collect Largest Estate Tax Check

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The estate of Tribune Review publisher Richard Mellon Scaife paid $100 million in inheritance taxes, “the largest by far” received by Pennsylvania.  “Today, the executors of Mr. Scaife’s estate made an advance payment of Pennsylvania Inheritance tax in the amount of $100 million.  As has been reported, Mr. Scaife had a significant estate, [the value of which has yet to be set.] This is the first of several estimated tax payments by the executors until the final amount of the inheritance tax due is determined,” said estate lawyer Yale Gutnick.

Last year, the state collected $877.4 million in inheritance taxes and estimate receiving more than $934 million in inheritance taxes for the current fiscal year.  The tax paid by the Scaife estate would equal more than ten percent of the yearly estimated total. 

See Rich Cholodofsky, Scaife Estate Tax Payment of $100M Filed, Trib Live News, Oct. 3, 2014.

October 8, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 7, 2014

Planning for Non-U.S. Citizens


If you have substantial wealth, planning carefully for your future and the future of your loved ones is imperative.  While many people understand the basics of will drafting, those married to non-citizens of the United States may be less familiar with the estate tax laws that affect their future plans.

Whether or not you are married to non-American citizens, you have the ability to leave your property and assets to them, regardless if they have a visa, green card, or if they are a resident of the U.S.  Unfortunately, you may need to pay a hefty estate tax on some of the money that you leave behind if your non-citizen spouse is inheriting the money. 

If your spouse is a citizen, a special rule called “unlimited marital deductions,” states you can give them any amount of money, both in the form of gifts and inheritance throughout your lifetime.  The unlimited marital deduction cannot be applied to a marriage in which one spouse is not a U.S. citizen.  Instead, the basic rules for gift-giving and estate taxes still apply: you may give your spouse a $5.34 million total over your lifetime without paying taxes, including a $145,000 annually in gifts.

See Janet Brewer, The Unlimited Marital Deduction & Non-Citizen Spouses, JD Supra, Oct. 6, 2014.

October 7, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)