Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Saturday, January 24, 2015

The Outdated QPRT

HouseQualified personal residence trusts (QPRTs) may have outlived their usefulness and cause more damage to an estate plan than they are worth. QPRTs were popular in the 1980s when the Federal estate tax exemption was $600,000. The increase of the exemption to the current $5.43 million takes away the advantage of QPRTs for most individuals, but leaves the downside, which is a stagnate basis when the ownership of the residence is transferred resulting in a larger gain and higher capital gains tax. Possible solutions for existing QPRTs vary based on state law.

See Michael Ide, How QPRTs Went From Effective Estate Planning to Time Bomb, Value Walk, Jan. 21, 2015.

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

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

Thursday, January 22, 2015

Dealing With Domicile

Joan Rivers

When comedian Joan Rivers died last September, a provision in her estate plan named her state of residency as New York, but her domicile as California. 

Though unusual, this was done to take advantage of the tax situation in each state.  New York has a state estate tax, whereas California does not.  Yet Rivers’ will was filed through the New York legal system, her primary residence, and probate usually takes place in the state of domicile. 

Domicile is typically a question of fact based on the individual’s intent to remain in, or return to, a particular state.  Factors indicating domicile are where they vote, in which state their car is registered, the address listed on their tax returns, etc.  Estate planning documents can also state a clear intention of domicile.  Thus, clients who are considering establishing a domicile different from their current one should prepare well in advance. 

There are multiple benefits to establishing domicile in other jurisdictions.  For example, fewer than 20 states have their own estate tax, and the exemption levels tend to run far below the federal exemption of $5.34 million per estate.  While a client can do everything to avoid the federal estate tax, his or her heirs could get stuck with a large estate bill. 

See Tom Nawrocki, State Estate Tax: Dealing With the Domicile Issues, Life Health Pro, Jan. 21, 2015.

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

January 22, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Wills | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 20, 2015

State of the Union: Obama Proposals Call for Tax Increases

Obama

In tonight’s State of the Union address, President Barack Obama will call on the new Republican-led Congress to raise taxes on investments and inherited property as well as create or expand a range of tax breaks for middle-income families.

The President’s new initiatives include tripling the child-care tax credit, creating a new credit for families in which both spouses work, and consolidating and expanding education tax breaks.  The administration also plans to make retirement savings programs available to more people by requiring employers to enroll workers in an individual retirement account if they have not already done so. 

The plan would make sweeping changes to the tax bills of wealthier taxpayers by raising the taxes they pay in investments.  The top capital gains rate would rise to 28 percent form 23.8 percent.  Furthermore, the plan proposes to tax capital gains at death rather than allow them to pass income tax free to heirs as under current law.  This implementation would eliminate arguable the biggest loophole in the tax code for wealthy households since postponing realization of capital gains until death may allow a taxpayer to avoid millions of dollars in taxes on substantially appreciated assets.

While it seems unlikely Congress will approve the President’s proposals, they will surely provoke heated discussion. 

See Carol E. Lee, Colleen McCain Nelson, and John D. McKinnon, Obama to Propose Tax Hikes on Investments, Inherited Property, Market Watch, Jan. 18, 2015.

See also Len Burman, President Obama Targets the ‘Angel of Death’ Capital Gains Tax Looophole, Forbes, Jan. 18, 2015.

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

January 20, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 14, 2015

Massachusetts Representative Proposes Estate Tax Cut

Cut taxes

As a way of keeping older residents and their assets in Massachusetts, State Representative Shawn Dooley is proposing a cut in the state estate tax. 

Rep. Dooley would accomplish the cut by doubling the exemption from the tax so it only impacts estates worth $2.6 million or more.  The bill he is filing would exempt the first $2.6 million of an estate and change the rates to 10 to 13 percent, with larger estates being hit with higher rates. 

Although Rep. Dooley estimates Massachusetts would lose between $10 million and $15 million a year in estate taxes if his changes were made, currently the very wealthy are avoiding the tax and less wealthy people are paying it.  Furthermore, by keeping more elderly people in the state rather then have them move their residency would increase some revenue. 

See Jim Hand, Attleboro Area State Rep Proposes Cut in Mass. Estate Tax, The Sun Chronicle, Jan. 13, 2015.

January 14, 2015 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Monday, January 12, 2015

New European Inheritance Rules

France

In August 2015, new inheritance rules come into force and owners of French property can benefit from them.

Many people who already own property in France, or who are thinking of buying, will be aware that French law currently governs the taxation and devolution of overseas property.  Furthermore, in France, protected heirs will have a fixed right to at least a minimum interest in an estate.  In practice, this means that the French legal system decides who receives property upon a person's death and a will is likely to be ineffective if it conflicts with forced heirship. 

Fortunately, all of this is changing in 2015.  Under this piece of legislation, EU regulation 650/2012 or Brussels IV, any British national who has property in France, or other participating EU state, can choose either the law of the country of their habitual residence or their nationality to govern the devolution of their French estate.  If no choice is made, the default position is the succession of an estate is governed by the state of the individual's habitual residence—France. 

See Emma Rawle, New European Inheritance Rules Explained, Complete France, Jan. 12, 2014.

January 12, 2015 in Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

CLE on Planning Techniques for Large Estates

CLE

The 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.  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

January 12, 2015 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Estate Tax Repeal Bill

Tax CutThe Death Tax Repeal Act (H.R. 173) has been filed by Texas Congressman Mac Thornberry that will repeal the Federal estate, gift, and generation-skipping taxes if passed. Thornberry described the "death tax" as "fundamentally unfair," and expressed concern for the impact of the tax on "small business owners, farmers, and ranchers," in his statements through a press release from his office released January 8, 2015. At the time of the press release there were 36 cosponsors to the bill.

See, Thornberry Introduces The Death Tax Repeal Act, Everything Lubbock, Jan. 10, 2015.

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

January 12, 2015 in Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 7, 2015

Death Tax May Adversely Affect Landowners

Land

When the federal estate tax was reduced in 2010, landowners rejoiced.  Yet, as changes to estate taxes lie ahead, there has been a shift from planning for tax minimization to planning for succession.  In some states, this failure to plan for tax minimization could result in the need to cut timber or sell parts of the family land. 

In Minnesota, for example, 44 percent of forestland is privately owned.  As land values increase over time, it is easy to see how a modest amount of forestland in an estate can trigger a state estate tax.  The resulting tax may exceed the liquid assets in the estate, requiring either a sale of timber before the forest has matured, or a partial property sale.   

In the past few months, a few states have made efforts to increase the exemption and expedite the phasing out of the state death tax.  Moreover, there are federal proposals to change both the death tax rate and exemption levels.  If the federal tax credit for state death taxes return, landowners in many states will have to plan for estate taxes. 

See Tamara Cushing, State Death Tax Changes May Hurt Family Landowners, Human Events, Jan. 6, 2015. 

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

January 7, 2015 in Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 6, 2015

Death to the Death Tax?

Estate tax2

Although the death tax is alive and well in the New Year, it may not be for much longer.  As of now, the death tax (or estate tax) yields a $5 million exemption and anything above that amount is taxed at a 40 percent rate. 

Proponents of the tax say it helps prevent consolidation of wealth in the hands of a few powerful families, but others see it differently.  With an incoming Republican-led House and Senate, opponents of the death tax are optimistic that legislation to repeal the tax will be reintroduced and subsequently approved.  “We’re hopeful that we can put enough pressure on this president through our family business owners and farmers to make him sign the bill,” says Palmer Schoening, chairman of the Family Business Coalition. 

See Chris Woodward, Will GOP-led Congress Kill the Death Tax, One News Now, Jan. 15, 2015.

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

January 6, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Estate Tax Complications When Domicile Unclear

Question BlockAs I have previously discussed, Joan Rivers' will named her state of residency as New York, but her domicile as California. The further action by her estate of filing her will in New York though probate is usually done in the state of domicile, creates questions as to not only the motivation for both decisions, but what the effects will be. One possible motivator may have been to take advantage of the varying estate tax, income tax, and probate processes of each state. Though California does not have a state estate tax, one possible risk of others splitting residence and domicile, either intentionally or not, is the estate facing estate taxes from both states. Such a dual state estate tax burden was faced by the estate of Campbell Soup founder John T. Dorrance after his death in 1930.

See Charles Douglas, Death and Domicile--No Joking Matter, Wealth Management, Jan. 5, 2015.

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

January 6, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)