Wills, Trusts & Estates Prof Blog

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

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Tuesday, August 26, 2014

Changes May be Coming to New Jersey’s Inheritance and Estate Tax

Tax CutA repeal of New Jersey’s inheritance tax is being considered by lawmakers in the state. A change to the current inheritance and estate tax system has been suggested by the state’s governor, Chris Christie. Possibly raising the threshold for the estate tax from the current $675,000, is also being considered.

 See, New Jersey Lawmakers Consider Repel of State’s Inheritance Tax, CBS New York, Aug. 24, 2014.

August 26, 2014 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 19, 2014

Picking Up the Taxes

Estate tax2

When a loved one dies, all financial debacles do not automatically disappear.  Someone must step up to handle the resulting financial matters.  This person is often named in the decedent’s will as the estate executor; yet if there is no will, the probate court may appoint an executor.  If you end up with the job, you will identify the estate’s assets, pay off its debts, and then distribute what is left to the rightful heirs and beneficiaries.  You are also responsible for filing any required tax returns and paying any taxes due. 

There are several tax issues executors should be cognizant of including those appearing on the income tax return.  Make sure to look out for medical expenses.  If large uninsured medical expenses were incurred but not paid before death, the executor must choose how they are treated for federal income tax purposes.

You may also have to file a federal income tax return for the estate.  Once an individual has passed away, any income generated by his or her holdings after death becomes part of the estate and is taxed on the estate’s own federal income tax return.  

See Bill Bischoff, Dying Doesn’t Make the Taxman Go Away, Market Watch, Aug. 19, 2014.

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

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

Wednesday, August 13, 2014

Tax Case Became Battle Between the Estate and Itself

Money ScaleAs I have previously discussed, the estate of Franklin Adell, who died August 2006, was recently in tax court regarding notices of deficiency from the IRS. The Adell state was in Tax Court again, for the third time. This time the estate was in court regarding the valuation of STN.Com, a company that was controlled by Adell, then by his son Kevin after Adell’s death.

In Estate of Franklin Z. Adell v. Commissioner, the valuation of STN was more than the common situation of the estate valuing the asset at less than the IRS, but rather the estate had valued the asset at significantly different amounts. The company was first valued at $9.3 million on a Form 706, and then at trial at $4.3 million. The Tax Court did not find convincing evidence that the first valuation was an error and valued the company according to the first Form 706 admission.

See Espen Robak, Valuation Lessons from Estate of Adell, Wealth Management, Aug. 11, 2014.

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

August 13, 2014 in Estate Planning - Generally, Estate Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 12, 2014

Article on Estate Planning with Life Insurance

Kelly moore

Kelly A. Moore (University of Toledo College of Law) recently published an article entitled, Rubik’s Cube and Tax Policy: Proposed Solutions For Puzzling Components of Estate Planning with Life Insurance, 33 Va. Tax Rev. 429-457 (2014).  Provided below is the article’s abstract:

For taxpayers with wealth levels sufficient to trigger estate and gift tax concerns, the creation of irrevocable life insurance trusts (ILITs) is currently an irresistible estate planning option. If properly drafted, executed, and managed, the death proceeds from a life insurance policy can escape estate taxation upon the death of the insured and the insured's spouse, and the act of funding the trust may escape gift taxation. These tax benefits are obtained if the taxpayer is willing to incur the expense and expend the time associated with ILITs. Estate planners collect fees from (and insurance companies sell policies to) taxpayers to help them avail the benefits of an ILIT, but requiring the taxpayers to jump through the hoops in order to obtain the tax benefits furthers no policy objective. In essence, the taxpayer is presented with a choice: either subject the insurance on your life to transfer taxation or pay an estate planner to avoid imposition of the tax. This article proposes a limited exclusion for insurance proceeds from the gross estate, affording the taxpayers the benefit without the burden. Also, the article proposes a change in the provisions governing lapsing power of appointments in the case of ILITs, to remove the need for certain complex terms in any ILITs that may still be created.

August 12, 2014 in Articles, Estate Planning - Generally, Estate Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Three Estate Planning Tips for Limiting Taxes

Tax CutFreezing the value of assets and keeping the value of an estate from appreciating overtime can reduce the amount of taxes for an estate. Here are three estate planning tools to reduce the taxes faced by the estate.

  1. Put assets into a Family Limited Partnership to keep asset value from increasing and decrease taxes
  2. Create an Intentional Defective Grantor Trust and pay the taxes with non-trust funds to maximize trust income and decrease the value of the estate
  3. Use a Grantor Retained Annuity Trust to freeze the value of assets and keep the overall taxable value of the estate from increasing

See Brian Luster & Steven Abernathy, 3 Ways to Avoid Tax Hits in Estate Planning, Medical Economics, June 10, 2014.

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

August 12, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

The Importance of Pre-Nuptial Estate Planning Discussions Post Windsor

CoupleIn a post-Windsor world, married same-sex couples now have equal treatment for federal tax purposes, creating new considerations for estate planning for same-sex couples. Now, all couples should give great weight to the importance of having talks about finances prior to marriage. A recent National Fatherhood Institute survey reveals that communication and finances are the top two causes of divorce. It is important that all couples discuss the financial basics, such as spending habits and expense sharing, as well as their goals for retirement and estate planning.

See Don McNay, Same Sex Marriage, Taxes and Winning the Lottery, Huffington Post, Aug. 10, 2014.

August 12, 2014 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Inheritance Tax Avoidance in UK May Accelerate Payment Due Date

Tax IncreaseA new proposed tax plan in the United Kingdom could result in wealthy individuals facing inheritance taxes before they die. The new plan is intended to prevent tax avoidance schemes by making payment due during the person’s life rather than after death. The plan will affect trusts that are suspected of being used for tax avoidance, such as offshore trusts.

See Peter Dominiczak & Dan Hyde, Savers Could Pay Death Tax While They Are Still Living, The Telegraph, Aug. 10, 2014.

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

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

Wednesday, August 6, 2014

Estate Tax Elimination Battle Continues

Estate tax2

With the upcoming election, many people believe that the latest Republican attempt to repeal the estate tax is purely a political ploy. 

The estate tax may not even have any real benefit to the government.  It raised just $13.7 billion last year, which is just a tiny fraction of the federal tax revenues.  The Congressional Joint Committee on Tax has issued numerous reports during the years that state and estate tax is actually a net revenue loser for the government.

Proponents of the estate tax claim it is necessary because it keeps wealth from accumulating in too few hands.  Yet, opponents claim the opposite happens because of the estate tax.  Since larger taxable estates use tax-exempt foundations, they not only hold wealth but also avoid both the estate tax and income tax to keep on accumulating more wealth. 

Meanwhile, those running for Congress will anticipate estate tax antagonists to keep the campaign contributions to keep coming. 

See Dennis Kleinfeld, Is Estate Tax Repeal Fight a Shakedown? Money News, Aug. 4, 2014.

August 6, 2014 in Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, August 4, 2014

High Likelihood of Tax Audits for Wealthy Estates

TaxesThe likelihood of IRS estate tax audits has risen, and federal estate tax returns are being looked at with heightened scrutiny. One possible reason for this is that the current federal estate tax exemption amount is resulting in fewer estate tax returns filed with the IRS each year, which allows the IRS to look closer at the ones that are. For the large estates that must file a return it very important to have every detail correct, considering that all of the returns for estates valued over $10 million in 2011 were audited.

See, Estate Tax Audits for Large Estates Are a Virtual Certainty, Choate, March 3, 2014.

August 4, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, August 3, 2014

"Step-Up" Basis Planning

Estate tax2

One limitation of trusts is that trust property is ordinarily not eligible for a “step-up” in basis at a beneficiary’s death.  However, property owned outright does get a “step-up” in basis at death, which eliminates capital gains tax on any gains to that point.  This would seem to present an “either/or” choice where one could take advantage of the trust structure or give up the opportunity for capital gains tax relief afforded by the basis step-up rules. 

Taking advantage of well-established tax principles eliminates the “either/or” choice.  One solution is to create a provision in trust agreements called “the contingent general power of appointment (CGP).”  This allows trust property to be included in a beneficiary’s taxable estate at death in order to qualify for a step-up in basis, as long as that will not cause any increase in estate tax.  Consequently, trust property with previously unrealized capital gains can be sold with no capital gains tax liability. 

See Day Pitney, LLP,Planning For Income Tax Basis “Step-Up”, Estate Planning Update, July 2014.

August 3, 2014 in Estate Planning - Generally, Estate Tax, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)