Friday, October 31, 2014
Lawrence Brody & Mary Ann Mancini published the third edition of their book entitled, Federal Gift, Estate, and Generation-Skipping Transfer Taxation of Life Insurance. Provided below is a description of the book from ABA:
This concise primer will guide you in minimizing the transfer tax of an estate plan and avoiding the pitfalls that can occur. The authors discuss gift tax issues, estate taxation of life insurance, generation-skipping transfer tax and its application to life insurance and irrevocable life insurance trusts, community property considerations, and more.
Now updated and completely revised, this volume in the popular Insurance Counselor series will help you take full advantage of minimizing the transfer taxation of the estate plan as well as avoid the many pitfalls that can arise. The first chapter deals with life insurance as a gift, informing you about the valuation of policies and their qualification for the gift tax annual exclusion. Among the areas discussed are:
- Outright transfers, transfers in trust, indirect gifts
- The uses and issues relating to Crummey powers
- The gift tax marital deduction
Further issues discussed in the second chapter are the gift tax, including consideration of cases when a gift occurs with respect to a life insurance policy, the valuation of the gift, and the availability of the gift tax annual exclusion and the gift tax charitable or marital deduction. The third chapter deals with the estate taxation of life insurance, with emphasis on the two IRC sections that have particular application to life insurance: sections 2035 and 2042. The fourth chapter discusses the generation-skipping transfer tax and its application to life insurance and irrevocable life insurance trusts, while the final chapter specifically addresses important community property considerations.
Wednesday, September 17, 2014
Edward 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.
Friday, June 20, 2014
It is becoming increasingly common for families to own assets internationally, for executives to have international assignments, and for families to have members live abroad. These “cross-border circumstances” give rise to many U.S. income, gift, estate, and generation-skipping transfer tax consequences, especially when trusts are involved.
Because U.S. citizens are subject to U.S. income tax on their worldwide income, the broad tax umbrella also extends to U.S. individuals, trusts and estates. Residence is not determinative of taxation, thus, even if a U.S. citizen has departed the United States they are subject to tax on their worldwide income. Additionally, persons who are considered “residents” of the United States are subject to U.S. income taxation on their worldwide income even if they are not U.S. citizens. This includes U.S. resident trusts and estates.
For non-residents who are not U.S. citizens it is the site (“situs”) of their property that determines whether they will be subject to U.S> transfer taxes. For both gift and estate tax purposes, real property and tangible personal property physically located in the United States has a U.S. situs. For gift tax purposes, intangible personal property does not have a U.S. situs, whatever its source or location. However, for estate tax purposes, intangible personal property has a U.S. situs if it is derived from a U.S. person or entity.
Yet, for policy reasons, many types of property are treated under the Code as not having a U.S. situs despite being located in the United States. Examples include deposits with U.S. banks and savings and loans, life insurance proceeds, and works of art on loan for exhibition.
This is an ever-changing area of the law that requires meticulous attention to continuing developments. If a foreign estate or trust has an interest in a foreign partnership or a foreign corporation, it will be necessary to separately consider the applicability of any reporting requirements with respect to those interests.
See Suzanne L. Shier, Cross-Border Trusts, Northern Trust, May 2014.
Monday, May 26, 2014
The Treasury Department recently released its 2015 Green Book defining the administration’s budget proposals for the coming year. In regards to transfer taxes, the budget renews every transfer tax proposal from the FY2014 budget in a similar form, some of which include:
- A reinstatement of 2009 transfer tax laws with portability beginning in 2018.
- Require the basis of the property in the hands of the recipient of a gift or devise can be no greater than the value of that property determined for estate or gift tax purposes.
- Ten-year minimum term for GRATs.
- Elimination of GST tax benefits for health, education and exclusion trusts.
The budget adds another new proposal that deals with annual exclusion gifts made to trusts or other entities where the donee does not have immediate use of the funds. The IRS has been concerned that Crummey powers could be given to multiple discretionary beneficiaries, many of whom would never receive a distribution from the trust, thus inappropriately excluding large amounts of contributions made to the trust from gift tax. The proposal would define a new category of transfers, thereby allowing an annual exclusion of $50,000 per donor on transfers. This proposal could simplify insurance trust funding and eliminate the problems associated with Crummey notice administration.
See Julius Giarmarco, President’s Plans For Estate, Gift and GST Taxes, ProducersWeb.com, May 9, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
Thursday, May 8, 2014
Stout Risius Ross recently launched the SRR Estate and Gift Tax Valuation Blog. This new blog aims to provide timely and newsworthy insights into the wide world of estate and gift tax valuation.
Though not the exclusive focus, this blog will pay special attention to valuation issues relating to tax controversy by SRR professionals, who are experts in many specialized issues encountered in estate and gift tax valuation.
Friday, April 18, 2014
Barry Cushman (Notre Dame Law School) recently published an article entitled, Tax Recognition, St. Louis University Law Journal, Vol. 58, p. 825, 2014. Provided below is the abstract from SSRN:
This article was prepared for the St. Louis University Law Journal’s “Teaching Trusts & Estates” issue. Many law students take a course in Trusts & Estates, but comparatively few enroll in a class devoted to the federal wealth transfer taxes. For most law students, the Trusts & Estates course provides the only opportunity for exposure to some of the basic features of the estate tax, the gift tax, the generation-skipping transfer tax, and some related features of the income tax. The coverage demands of the typical Trusts & Estates course do not allow for intensive discussion of these issues, but there are numerous opportunities to introduce relevant tax considerations while teaching the substantive law of wills and trusts. Using the Dukeminier & Sitkoff casebook as an example, this article explores the opportunities for interstitial recognition of the tax issues often lying just beneath the surface of private law disputes. Seizing the opportunities that these cases present to introduce some basic tax concepts and planning strategies can alert students to simple methods of tax savings and help them to avoid costly potential estate planning errors.
Saturday, April 12, 2014
Paul L. Caron (Pepperdine University School of Law) and James R. Repetti (Boston College Law School) recently published an article entitled, Revitalizing the Estate Tax: Five Easy Pieces, Tax Notes, v. 142, 2014, p. 1231-1241. Provided below is the abstract from SSRN:
In a previous article, we argued that contrary to the state of the law over 35 years ago — when George Cooper wrote his seminal article on the estate tax (A Voluntary Tax? New Perspectives on Sophisticated Estate Tax Avoidance, 77 Colum. L. Rev. 161 (1977)) — taxpayers today generally ‘‘can reduce the value of assets subject to transfer tax in many instances only if they are willing to assume the risk that the reduction may be economically real and reduce the actual value of assets transferred to heirs or, alternatively, in narrow situations if they are willing to incur some tax risk.’’ (The Estate Tax Non-Gap: Why Repeal a Voluntary Tax?, 20 Stan. L. & Pol’y Rev. 153 (2009)) In another article, we documented the dramatic increase in income and wealth inequality over the past 30 years and the accompanying adverse social consequences and long-term negative effect on economic growth. (Occupy the Tax Code: Using the Estate Tax to Reduce Inequality and Spur Economic Growth, 40 Pepp. L. Rev. 1255 (2013)) We argued that tax policy historically has played an important role in reducing inequality and that the estate tax is a particularly apt reform vehicle in light of the role of inherited assets among the very rich and the adverse economic effects of that inherited wealth. In this article, we advance five estate and gift tax reform proposals that would generate needed revenue, reduce inequality, and contribute to economic growth: (1) disallow minority discounts when the transferred asset or business is controlled by family before and after the transfer; (2) maintain parity between the unified credit exemption amounts for the estate and gift taxes; (3) reduce the wealth transfer tax exemptions to $3.5 million, increase the maximum tax rate to 45 percent, and limit the generation-skipping transfer tax (GSST) exemption period to 50 years; (4) restrict the ability for gifts made in trust to qualify for the gift tax annual exclusion; and (5) impose a lifetime cap on the amount that can be contributed to a grantor retained annuity trust (GRAT).
This article was presented on January 17 at a symposium in Malibu, California cosponsored by Pepperdine University School of Law and Tax Analysts. Twenty of the nation’s leading tax academics, practitioners, and journalists gathered to discuss the prospects for tax reform as it is affected by two crises facing Washington: dangerously misaligned spending and tax policies, resulting in a crippling $17.4 trillion national debt; and the IRS’s alleged targeting of conservative political organizations. A video recording of the symposium is available online.
Sunday, April 6, 2014
The Joint Committee on Taxation has released its Overview of the Federal Tax System as in Effect for 2014. It provides a summary of the current 2014 tax system, consisting of four main elements--income tax on individuals and corporations (regular and alternative minimum tax); payroll taxes on wages (and self-employment income) to finance certain social insurance programs; estate, gift, and generation-skipping taxes (GSTs); and excise taxes on goods and services.
See Joint Committee on Taxation, Overview of the Federal Tax System as in Effect in 2014, JCX-25-14, Mar. 28, 2014.
Monday, March 17, 2014
President Obama has released his proposed 2015 budget, which would make many changes related to the estate tax and current estate planning tools. These changes include going back to 2009 estate rates that were in effect prior to the American Taxpayer Relief Act. The changes would take effect Jan. 1, 2018.
One of the proposed changes would reduce the tax exemption amount to $3.5 million for estate and generation-skipping transfers, and to $1 million for gifts given during life. The current tax exemption amount for transfers during life and at death is $5.34 million. The proposed budget would also raise the top tax rate from 40% to 45%. In addition to rate and exemption changes, the proposed budget would end the establishment of dynasty trusts. There are currently four states that allow trusts to continue indefinitely.
See Deborah Jacobs, Obama Budget Takes Aim at Popular Wealth Transfer Tools, Forbes, Mar. 4, 2014.
Saturday, March 15, 2014
The American Law Institute Continuing Legal Education (ALI CLE) is sponsoring a CLE entitled, Planning For Medium-Sized Estates: Practical Strategies for Estate, Gift, and Tax Planning, on Wednesday- Friday, March 19- 21. Earn 21-25 CLE/ CPE credits, including ethics with just one program. Provided below is a description of the event:
With the new permanence of portability and the groundbreaking decisions of the Supreme Court in United States v. Windsor and Hollingsworth v. Perry, estate planners have had to scramble to adjust to the new regulations, correct previous filings, update estate plans, and consider new tax and non-tax planning opportunities. Medium-sized estates, in particular, require a refreshed look so that clients can avoid negative tax consequences as well as take advantage of some new, potentially fruitful opportunities.
how Windsor and Perry affect planning for same-sex couples – what’s different and what stays the same? portability becoming permanent generation-skipping transfer (GST) tax exemptions today probate avoidance and more!