Wills, Trusts & Estates Prof Blog

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

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)

Saturday, September 19, 2015

The Inflation-Adjusted Figures For 2016 Estate And Gift Taxes Have Been Released

IrsThomson Reuters Checkpoint have recent calculated the projected inflation-adjusted amounts for a number of different tax figures.  The organization has based its calculations on the consumer price index (CPI) for the 12-month period that ended on August 31, 2015.  It is important to remember that these Thomson Reuters Checkpoint figures are not the official figures that the IRS will release later this year.  Right now the gift and estate tax exemptions, gift tax annual exclusion, and the annual exclusion for gifts to non-citizen spouses are all projected to increase in 2016.  The gift tax annual exclusion is projected to remain the same.  

See Lana Hompluem and Alan M. Singer, Thomson Reuters Checkpoint calculates projected inflation-adjusted figures for estate and gift taxes for 2016, Bryan Cave LLP, September 17, 2015.

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

September 19, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Friday, July 17, 2015

IRS Issues Private Letter Ruling On Proposed Trust Modification

IrsThe Internal Revenue Service (IRS) has issued a private letter ruling holding that the generation-skipping transfer tax (GST) exemption will not be affected by a proposed modification to a trust.  In the articles example the Trustee and Beneficiaries agreed to a proposal to modify the method of calculating a unitrust amount.  The article discusses how the modification was administrative in nature and was not considered to be a shift in beneficial interest.  State statute permitted the modification and it did not shift the beneficial interest to a beneficiary on a “lower generation than the persons who held the beneficial interest prior to the modification.”  The private letter ruling also held that the modification would not subject the trust to any gift tax and there would be no realization of gain or loss under IRC Section 1001. 

See Alison E. Lothes, IRS Considers Proposed Modification To Trust, Wealth Management, July 14, 2015.

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

July 17, 2015 in Current Affairs, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Trusts | Permalink | Comments (0)

Thursday, July 16, 2015

Will SCOTUS Take Up Case On Legality Of Retroactive Tax Laws?

Past and FutureAs states look for ways to raise new revenue, many have turned to a dubious tactic in which tax laws are amended and made retroactive to force once paid up persons to cough up more dough. In Washington, the state retroactively applied estate tax changes back to the year 2005 which forced many to reopen returns and potentially pay additional money to state. The law was challenged by taxpayers but the Supreme Court of Washington upheld the legality of the statute. The case was appealed to the U.S. Supreme Court and is currently awaiting a response to their petition for certiorari which argues that the retroactive changes are unfair and violate the due process of those affected. If this ruling is affirmed, then the ability of states to reach back in time for more money could unleash a flood of activity by legislatures looking to fill budget gaps. This would be a massive headache for estate planners since it would create a shifting goal-line and make it almost impossible to know the exact tax burden an estate will carry.

See Matthew Boch & Mark Yopp, How Far Back Can a Back Tax Go? Petition for Certiorari in Hambleton Asks Supreme Court to Right Unjust Retroactivity, Inside SALT, July 14, 2015.

July 16, 2015 in Estate Administration, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Friday, May 15, 2015

IRS Allows Generation Skipping Trust To Use Settlement Agreement Without Losing Status

IRS LogoIn a series of private letter rulings, the IRS has establishes that using a family settlement agreement will not strip a generation skipping trust of it's tax protection. In this case, an irrevocable trust set up to provided for a spouse, children, and grand-children was subject to litigation by younger beneficiaries looking for an immediate payout. A court sponsored agreement was entered into which required a LLC controlled by the trust to make payments per the arrangement. The IRS also ruled on whether the distributions to the beneficiaries would be included in income.
See Dawn S. Markowitz, Settlement Agreement Distributions Retain GST Tax-Exempt Status, Wealth Management, May 12, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.

May 15, 2015 in Current Events, Generation-Skipping Transfer Tax, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, April 16, 2015

PLRs Approve Beneficiary of GST-Exempt Trust Transactions

Gavel2In four similar Private Letter Rulings, the Internal Revenue Service determined that the proposed sale by two trusts of farmland to a beneficiary would not cause either trust to lose its Generation Skipping Transfer Tax exempt status, nor would it trigger any gift tax or estate tax consequences.  The practical effect of these rulings would “secure a commitment from IRS in advance of closing that it would not later assert the farm had been undervalued.”

See Four More PLRs Approve Transaction with Beneficiary of GST-Exempt Trusts, Charitable Planning, Apr. 13, 2015.

April 16, 2015 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 7, 2015

Fairness in Dividing Estate Between Children With Unequal Income

Money FightFairness in estate distribution is a constant bugbear for any planner particularly when the children of the testator have unequal incomes. However, there are some ways to alleviate this issue by the use of tactics such as giving the better funded child more say in estate management while still providing for the offspring that need additional assistance. A generation skipping transfer is another promising solution by providing for grandchildren to ease the burden on the parents while also gaining special tax treatment. Ultimately there is no single solution to this dilemma but forward thinking can help prevent future challenges to the estate and many hurt feelings.

See Gail E. Cohen, That’s Not Fair!, Wealth Management, Mar. 31, 2015.

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

April 7, 2015 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2015

Congress Considers Estate Tax


After a member of Congress introduced legislation to repeal the estate tax, a House subcommittee held a hearing Wednesday on the subject.

Representative Kevin Brady (R-Texas), introduced the Death Tax Repeal Act of 2015 last month.  The bill would amend the Tax Code to repeal both the estate tax and the Generation-Skipping Transfer Tax.  Proponents of the bill argue that the estate tax hurts small businesses, family farmers and ranchers who hope to pass on their businesses to the next generation.  Yet, opponents point out that the estate tax only affects a few families, especially after the exemption amount was raised to $5 million. 

Ray Madoff, a professor at Boston College Law School, believes that Congress should not be hasty when it comes to repealing the estate tax.  He says that the estate tax promotes fairness in the tax system and provides an important source of revenue for the government.  According to the most recent estimates, the estate tax will generate about $294 billion over the next ten years.

See Michael Cohn, Congress Mulls Repeal of Estate Tax, Accounting Today, March 18, 2015.

March 19, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax | Permalink | Comments (0) | TrackBack (0)