Wills, Trusts & Estates Prof Blog

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

Wednesday, February 10, 2016

President Obama Proposes Changes To Tax Policy In New Budget

White houseThis article describes the changes in tax policies that are suggested in Obama’s new proposed budget. “It contains tax provisions affecting education, health care, and retirement, as well as proposing extensive changes affecting businesses.” These proposed changes will impact things like the earned income tax credit, child and dependent care credit, and education credits. Some of the new proposals will also deal with community colleges and retirement savings. There are also proposals to increase the capital gains tax rate and to reduce tax benefits for high-income earners. Included in the proposals are also tax credit proposals designed to incentivize bringing jobs back to the United States. Many of these proposals will likely not be passed by a Republican controlled congress. There will probably have to be changes in order to secure the necessary bi-partisan support to pass these proposals into law.

See Alistair M. Nevius, President’s budget proposes many tax changes, Journal of Accountancy, February 9, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.

February 10, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Monday, February 8, 2016

Estate Planning Tips To Remember This Tax Season

New estate planWith tax season approaching now is a good time to start reviewing the estate plan. It is important to review any changes in circumstances that might require making changes to a will or power of attorney. Make sure that the beneficiary designations for insurance plans, 401(k)s, IRAs, and other retirement plans are all updated. People might also consider the idea of creating a “living trust” to help channel assets directly to heirs. “The US Treasury Department recommends that owners of savings bonds prepare a list that records serial numbers, issuance dates, and the name and address on each bond, along with the Social Security number of the owner.” Finally, it is important for senior citizens to be wary of attending many of the free lunch seminars that they might get invited to.

See Julian Block, Estate Planning Reminders for This Tax Season, Accounting Web, February 8, 2016.

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

February 8, 2016 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Wednesday, February 3, 2016

Does A Deceased Person Have To File Taxes?

Business_expenseThis column discusses whether a deceased person is required to file a tax return. The date of death is when a decedent’s tax year ends and there is usually an executor appointed to handle legal matters that include any tax issues facing the estate. The estate might also have to file for federal and possibly state estate taxes if it meets the estate tax threshold. The executor is going to want to get a federal identification for the estate and also open accounts to handle estate’s financial affairs. “The executor will file two returns that year, an individual Form 1040 for pre-death earnings and a Form 1041, which is a fiduciary or estate rerun for the income through the end of the calendar year.” The role of an executor carries with it many fiduciary responsibilities and those who are accepting the role need to be aware any tax filing requirements.

See Edward J. Loughrey, Tax filing for the deceased, Bluffton Today, February 3, 2016.

February 3, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, February 1, 2016

Gift Tax Return Traps To Avoid

Tax returnWhen people with taxable estates are trying to reduce their estate tax burden by making an inter-vivos gift they will need to properly prepare a federal gift tax return (Form 709). There can be many nuances in the details when people are filling out gift tax returns and they need to be careful to avoid any of the common traps that are mentioned in this column. They need to be sure to provide an adequate disclosure of any gift that they provide. A person who is filling out a gift tax return will also need to avoid failing to properly allocate their generation skipping transfer (GST) tax exemption. It is also important to not make an inappropriate election of gift splitting to third parties and to adequately report any sales that are made. This column discusses many of the important requirements that need to be met with gift tax returns.

See Michelle L. Ward, Six Traps to Avoid When Preparing Gift Tax Returns, Wealth Management, February 1, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.

February 1, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Tuesday, January 26, 2016

What To Expect From New Changes To Estate Planning Laws

Estate planning changesThere are not that many major changes to estate planning laws coming in 2016, but there are a few subtle and evolving changes that clients and planners should be aware about. People need to be aware of the IRS provisions that were made permanent in the Protecting Americans from Tax Hikes (PATH) Act of 2015. One of the most important changes deals with the limitations on tax advantages for spin-off transactions involving a real estate investment trust (REIT). “The new rules say that a REIT spin-off qualifies for tax-free treatment only if, immediately after the distribution, both the distributing and controlled parties to the transaction qualified as REITs.” There have also been changes that will permit tax-payers over the age of 70 ½ to make tax-free charitable donations directly from their IRA accounts under certain conditions specified in the regulations. This article also discusses the changes to the rules dealing with annual gift tax exclusions.

See Tom Nawrocki, Changes to estate planning laws in 2016: what to expect, Life Health Pro, January 22, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.

January 26, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Saturday, January 16, 2016

Using Dynasty Trusts To Preserve Family Wealth

Adult childrenThe outright gifting of an asset can be a simple and efficient way to distribute an asset, but if a person’s goal is the long-term preservation of wealth they might want to make the gift to a family member in trust rather than outright. If a donor makes a gift to any person that is two or more generations below them they will need to consider the generation-skipping transfer (GST) tax. A dynasty trust is a trust that lasts longer than one generation below the grantor, and takes “advantage of the GST tax exemption to remove family wealth from the transfer tax system for as long as the trust is in existence.” This article provides a list of some of the advantages and disadvantages of dynasty trusts. There are certain regulations that can vary in each state so it is a good idea to meet with an estate planning professional to talk about setting up a dynasty trust.

See Dynasty Trusts: Keeping It in the Family, Wealth Management, January 15, 2016.

Special thanks to Jim Hillhouse for bringing this article to my attention.

January 16, 2016 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Trusts | Permalink | Comments (0)

Thursday, December 3, 2015

New IRS Regulations Dealing With An Estate Tax Carry Over For A Surviving Spouse

Business_expenseThe current federal estate and gift tax exclusion amount for the year 2015 is $5.43 million. This column discusses how a surviving spouse can retain the right to the portability of an unused estate tax even if they remarry so long as the second spouse does not also predecease the first spouse. Generation skipping transfer taxes involve grandparents leaving money to their grandchildren so the idea and principles of estate tax portability do not apply. Back in July, 2015, the Internal Revenue Service (IRS) has announced new rules concerning the carry over or portability of unused estate or tax exclusions. Surviving spouses will be permitted to refile their estate tax returns to apply for the tax exclusion transfer. Estates that are below the exclusion are treated differently from estates that are above the exclusion.

See Estate Tax Carryover For Surviving Spouse, Wealth Management, December 2, 2015.

December 3, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax | Permalink | Comments (0)

Saturday, November 14, 2015

Income-Shifting Strategies That Taxpayers Can Use

Income shiftingWealthy taxpayers with incomes above the threshold can be subjected to new taxes on investment income that takes a substantial bite out of the interest and dividends that they receive. The Affordable Care Act has assessed new taxes on the rich to pay and as a result has made income-shifting strategies more attractive for both single and joint filers. One technique that wealthy clients can use to reduce their taxable income involves gifting some of their assets to their kids, grandchildren, cousins, or other relatives. Taxpayers should learn about the gift tax exclusion and how they can get the maximum benefit from it. Another way for wealthy clients to move money to others indirectly can involve creating a Family Limited Partnership. A person could hire their relatives to perform routine tasks or simply bequeath their assets to family members. The bottom line is that there are many different methods that clients can use to move assets around to reduce or avoid certain taxes. It is a good idea to speak with an experienced estate planner to devise an individual strategy.

See Mark P. Cussen, Income-Shifting Strategies: How They Can Reduce Taxes, Investopedia, November 13, 2015.

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

November 14, 2015 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)

Monday, November 2, 2015

4 Tax Mistakes That Business Owners Should Avoid Making

Estate taxIt is very common for business owners to make mistakes when it comes to taxes.  These are four of the big mistakes that businesses should avoid making when it comes to paying taxes:

  1. Don’t deduct personal expenses as business expenses.  The Internal Revenue Code (IRC) permits deductions for “ordinary and necessary expenses,” but those expenses must be related to the business.  A taxpayer cannot use this deduction for personal expenses. 
  2. Be careful to avoid too-good-to-be-true opportunities.  There are many tax breaks offered in the Federal Tax code, but business owners should be wary of promoters that offer something that looks too good to be true.
  3. Aggressive tax planning can lead to consequences.  Being overly aggressive in tax planning could potentially lead to expensive consequences. 
  4. Bad tax strategies can lead to other legal consequences.  Making mistakes in planning for taxes could potentially lead to other legal consequences. 

See Steve Parrish, 4 Tax Mistakes Business Owners Make And How To Avoid Them, Forbes, October 26, 2015.

November 2, 2015 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

What Is An IRS Form 706 Used For?

Form 706An IRS Form 706 is used by taxpayers to report United States estate and generation skipping transfer taxes.  The form is filed by the executor of a deceased person’s estate if that person has a taxable estate worth at least $5.43 million or the executor wants to pass any unused exclusion amounts to the decedent’s surviving spouse.  For an executor the Form 706 can help him or her establish what the value of the estate is.  The Form 706 is also used for the generation-skipping transfer tax that is used to prevent people from being able to avoid estate taxes by “skipping” a generation.  This article also discusses certain “Social Security secrets” that people should not overlook. 

See Chuck Saletta, Why Would You Need Form 706?, The Motley Fool, November 1, 2015.

November 2, 2015 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Trusts, Wills | Permalink | Comments (0)