Wills, Trusts & Estates Prof Blog

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

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Sunday, September 21, 2014

Estate’s Application of Fractional Ownership Discount Permitted by Fifth Circuit

PaintingJames A. Elkins Jr. and his three children co-owned a collection of artwork made up of 64 pieces of various influential and famous artists, such as Pablo Picasso and Jackson Pollock. After Elkins died, his estate applied a fractional ownership discount to its tax calculations for the art collection. The IRS asserted that this discount was not allowed and the tax court applied a 10% discount instead.

In Estate of James A. Elkins, Jr. v. Commissioner, The Firth Circuit reversed the tax court, and found that Elkins’ estate was correct in calculating and applying the discount, which results in a refund of $14 million to Elkins’ estate.

See Roger Russell, Fifth Circuit Agrees With Estate’s Art Valuation, Awards $14 Million Refund, Accounting Today, Sept. 18, 2014.

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

September 21, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, September 20, 2014

New Jersey Estate and Inheritance Tax Reform Bills

Tax CutAs I have previously discussed, state lawmakers in New Jersey are currently considering changes to the state’s estate and inheritance tax statutes. There are currently multiple bills being considered that range from raising the threshold and exemption amounts for the taxes to completely abolishing the state’s estate or inheritance tax. Supporters of changes that would reduce the taxes’ effect on the state’s taxpayers have been showing their support by gathering on the steps of the state capital. A list of estate and inheritance reform bills pending in New Jersey can be found here.

See Ashlea Ebeling, Renewed Push to Kill New Jersey Estate Tax, Forbes, Sept. 16, 2014.

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

September 20, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Friday, September 19, 2014

Projections for 2015 Estate Tax Exemption

Tax CutThe Department of Labor released data on inflation on Wednesday. Wolters Kluwer has projected that as a result the federal estate tax exemption will increase from the current $5.34 million to $5.43 million in 2015. However, it is not projected that the annual gift tax exemption will increase, but rather remain the same at $14,000.

See Ashlea Ebeling, Limits on Tax-Free Lifetime Gifts Projected to Rise for 2015, Forbes, Sept. 17, 2014.

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

September 19, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, September 18, 2014

Tom Clancy’s Estate Feuding Over Estate Tax

TomClancyRainbowSixThe family of the late techno-thriller author, Tom Clancy, is in the midst of a legal battle over estate taxes. Clancy’s wife, Alexandra Clancy, brought the suit in an attempt to have all taxes against Clancy’s estate, estimated to be $16 million, taken out of the share received by Clancy’s four children from a previous marriage. Alexandra Clancy claims that it was Clancy’s intention for her portion of his $83 million estate to fall under the marital exception and completely exempt her from tax liability. The personal representative for Clancy’s estate has until October 17, to respond.

See Scott Calvert, Tax Battle Brews Over Tom Clancy’s $83 Million Estate, The Wall Street Journal, Sept. 17, 2014.

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

September 18, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Is the Estate Tax Inefficient?

Tax QuestionsAn analysis of the estate tax by the Tax Foundation, concluded that it may be more beneficial and efficient to eliminate the estate tax. This conclusion is based partly on the high cost of addressing administrative needs related to the tax, and relatively low revenue created which is roughly $18 billion annually.  The analysis also suggested that eliminating the estate tax would increase capital stock and the aggregate wealth of the United States in the long run.

See Mike Godfrey, US Death Tax is ‘Poor Source for Federal Revenue’, Sept. 16, 2014.

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

September 18, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Article on Estate Planning and Charitable Giving for Same-Sex Couples After United States v. Windsor

Ray PratherRay Prather recently published an article entitled, Estate Planning and Charitable Giving for Same-Sex Couples After United States v. Windsor, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is the introduction of the article:

About one year ago, the U.S. Supreme Court issued a decision in United States v. Windsor that significantly affected same-sex couples and their families. The Obama Administration has begun implementing the decision, which held that portions of the so-called Defense of Marriage Act are unconstitutional. On August 29, 2013, the IRS issued Rev. Rul. 2013-17, providing guidance on how the IRS will implement the decision. This article summarizes how the case and revenue rulings affect same-sex couples in a variety of situations, provides estate planning tips, and discusses the decision’s effect on charitable planned giving for same-sex couples.

September 18, 2014 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 17, 2014

Article on Gain from the Value of a Good Valuation

Tax QuestionsEdward A. Renn, James I. Dougherty & Marissa Dungey recently published an article entitled, Gain from the Value of a Good Valuation, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the introduction of the article:

Estate, gift, and generation-skipping transfer (GST) taxes all target and tax the transfer of property from a donor to a done. Obtaining a value of the property when computing the potential tax liability and structuring transfers is essential to tax-efficient planning and proper tax reporting. With easy-to-value assets, such as cash or marketable securities, valuations are straightforward. For other assets such as closely held business interests or art, determining the correct value is a task easier said than done. If hard-to-value assets are overvalued, the taxpayer will overpay on taxes (or unnecessarily use a portion of the taxpayer’s lifetime exemption). If the assets are determined to be undervalued by the IRS on audit, in addition to the time and expense of the audit and additional tax or use of credits, the taxpayer will have to pay interest on the underpayment of tax and may be subject to penalties.

September 17, 2014 in Articles, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 16, 2014

Making Charitable Donations With Life Insurance

Life insurance

Each year millions of Americans make donations of cash and property to the charities of their choice.  While these donations can provide valuable tax deductions, many donors wish that they could do more for the charities they support.  Thus, it would be wise for some donors to consider using their life insurance as a more effective means of leveraging the support they provide. 

One way of doing this is to gift a life insurance policy, which can in turn greatly reduce the donor’s taxable estate and save thousands of dollars in estate taxes.  There is no limit on the size of the policy that may be donated, since charitable donations have no ceiling for estate tax purposes.

Naming a charity as a beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy.  However, this strategy does not offer the income tax advantages that come with the gifting policy, although it still reduces the donor’s estate by the amount of the death benefit. 

It is also possible for policyholders to receive the dividends paid to their life insurance policies in cash and donate them to a charity.  The dividends donated are deductible in the same manner as premiums paid on a gifted policy.

See Mark P. Cussen, Using Life Insurance to Make Charitable Donations, Investopedia.

September 16, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Planning With A Bypass Trust

Trust

The bypass trust is a common estate-planning tool for marital estates where the couple’s potential combined taxable estates exceeds the exemption equivalent for one of the spouses. 

Utilizing the bypass trust involves balancing the estates in terms of value pre-death and then each spouse having a will that mirrors the other spouse’s will.  The wills then divide each spouse’s property into two shares.  One share is tied to the size of the applicable exclusion and the other is left outright to the surviving spouse and qualifies in the first spouse’s estate for the marital deduction.   This strategy zeroes out the estate tax in the first spouse’s estate and minimizes the tax in the survivor’s estate. 

While the bypass trust is an effective strategy, it may not be best for you or your client.  There are several things to look for that may make utilization of portability and a simple will a better approach.  If the children are all adults and can handle large bequests, a trust may not be necessary.  Moreover, portability may be the way to go if the parents reside in a state that does not have an estate or inheritance tax.

See Roger A. McEowen, Should a Bypass Trust be Used as Estate Planning Tool? Agriview, Sept. 5, 2014.

September 16, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Friday, September 12, 2014

Eight States Usher in Changes to Estate Tax Laws

Where not to die

Although the count of death tax jurisdictions remains the same for 2015 (19 states and the District of Columbia), eight states are marshaling in changes in 2015.  These states are increasing the amount exempt from death tax, indexing the exemption amount for inflation, and eradicating “cliff” provisions that tax the first dollar of an estate.  Moreover, there is action taking place in New Jersey to keep up with the pack, “Gov. Chris Christie can’t run for President with the worst estate tax exemption in the country . . . He has to say he tried.”

New York and Maryland are making the largest changes.  The Maryland legislature acted first by gradually increasing the amount exempt from the state estate from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption that is projected to be $5.9 million.

In New York, exemption amounts were doubled almost immediately.  Like Maryland but using a faster timetable, the New York exemption is set to rise gradually through 2019 to eventually match the federal exemption.  By April 1, 2017, the New York exemption will be $5,250,000. 

As other states continue to make changes, it is assured that there will be more changes on the state death tax map for 2016, if not before. 

See Ashlea Ebeling, Where Not to Die In 2015, Forbes, Sept. 11, 2014.

September 12, 2014 in Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)