Wills, Trusts & Estates Prof Blog

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

Tuesday, April 26, 2016

Tax Consequences Dealing With The Early Termination Of A Generation-Skipping Taxable Marital Trust

Irs2An IRS ruling recently held that a surviving spouse was the beneficiary of two marital trusts that were established under the late spouses revocable trust agreement.  One of these trusts was exempt from the generation-skipping transfer tax (GST) while the other was not.  “The provisions of each marital trust provided for the surviving spouse to receive all income during life and granted to the surviving spouse a testamentary general power of appointment (POA) over the assets in the GST taxable trust.”  This article discusses Revenue Procedure 2001-38 which sets forth a rule “that a qualified terminable interest property (QTIP) election is treated as null and void when the election isn’t necessary to reduce the estate tax liability to zero.”  They held that a release of a general Power of Attorney (POA) created a taxable gift under IRC Section 2514(b). 

See Andrew M. Nerney and Andrew B. Seiken, IRS Rules on Tax Consequences Associated With Early Termination of a Generation-Skipping Taxable Marital Trust, Wealth Management, April 25, 2016.

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

April 26, 2016 in Elder Law, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Wednesday, April 13, 2016

Why E-Filing Is A Good Idea

File earlyConverting to E-filing makes paying taxes easier.  In 2015 more than 129 million Americans electronically filed their tax returns.  E-filing tax returns increases the odds of the filings being accurate.  The information in the electronic filing is encrypted and the IRS has been taking more steps recently to crack down on identity theft.  The process of e-filing is convenient and there are programs available for people who meet certain requirements.  Faster tax refunds are another advantage of electronically filing your tax returns.  People who e-file can also receive assistance with the tax provisions of the Affordable Care Act.  There are also payment options available to people who have to pay the federal government money.  There is an April 18 deadline that is fast approaching and taxpayers will need to act quick if they want to avoid the consequences of missing the deadline.

See Frank Ellis, Six reasons to e-file your taxes in 2016, Examiner, April 13, 2016.

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

April 13, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Technology, Web/Tech | Permalink | Comments (0)

Monday, April 11, 2016

Late Filing Excuses That Might Work With The IRS

Late filingThe deadline for filing tax returns is fast approaching, and there are many people who will probably miss the deadline.  This article discusses some of the more reasonable excuses for not filing on time which the IRS might accept.  Whether the IRS will accept the excuse will often depend on the person’s individual circumstances.  The IRS might be understanding if the taxpayer is grieving the loss of a family member or recently suffered a health crises or loss of employment.  They would probably be less understanding if the person just blew off filing a tax return for no good reason.  There is also a first-time penalty abatement waiver, and as a result everyone basically gets one free pass if they forget to file on time.  The best thing to do is avoid these issues by filing on time before the deadline.

See Lisa Kiplinger, What late-filing excuses work with the IRS, The Arizona Republic, April 11, 2016.

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

April 11, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Helping Adult Children With Finances

Adult children2This article tells people what they should know when providing financial assistance to their adult children.  When making a loan to an adult child the parent or guardian should make sure that they follow the proper IRS rules regarding rates.  If it is a gift then they should familiarize themselves with the $14 thousand exemption rate and what sort of exceptions exist that might allow them to exceed the exemption amount.  “Any other uses of the funds exceeding the $14,000 exemption amount requires that the donor submit a Gift Tax Return (Form 709, available at www.irs.gov) when filing her income taxes for the year in which the gifted amount exceeds the $14,000 limit.”  Clients will also need to factor in the consequences of their adult children not paying back the loan.  Finally, this article discusses the need for parents or guardians to strive to keep the peace in their family. 

See Kevin McKinley, Giving Adult Children A Helping Hand, Wealth Management, April 11, 2016.

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

April 11, 2016 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Friday, April 8, 2016

Funding An Irrevocable Life Insurance Trust Without Making Any Taxable Gifts

Trust fundThis article points out how people can fund life insurance policies in an irrevocable life insurance trust (ILIT) without the funds being classified as taxable gifts.  Under current Treasury regulations the trust can also be generation-skipping.  Up until 2003 there were only three ways to get money into an ILIT: “(1) outright gifts, (2) economic benefit split-dollar arrangement, and (3) an existing funded trust.”  Another technique is the split-dollar arrangement which can be used to reduce the gift amount relative to the premium amount.  Internal Revenue Code Section 7872 was a no-gift way to fund an ILIT that emerged on September 17, 2003, covering loans between related parties.  There are two exit strategies discussed in this article involving either having the death benefit rise each year or investing the lump sum and using the growth of the investment as the source to draw from when repaying the loan.  Treasury Regulation Section 1.7872-15 deals with how the IRS will treat the ILIT funding as a loan.

See Richard L. Harris, No-gift Irrevocable Life Insurance Trust Funding, Wealth Strategies Journal, April 7, 2016.

April 8, 2016 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Trusts | Permalink | Comments (0)

Tuesday, March 29, 2016

Deadlines For Filing Taxes

Tax dayThis year’s tax day is going to be on April 18, 2016, instead of the usual April 15 date.  The reason for this change in the tax date is because this year April 15 will fall on Emancipation Day which is a federal holiday.  Any person who wants an extension for filing their taxes “must file Form 4868 before April 18.”  The new deadline for anyone who successfully filed for an extension will be October 17, 2016.  People who are owed a tax refund will be given an extra three years to file their taxes to claim it.  It is a good idea for people to stay on top of getting their tax returns filed on time and hopefully this article will be of some assistance to those who need to remember the deadlines. 

See Brian Stoffel, This Is the Absolute Last Day You Can File Your 2015 Taxes, My San Antonio, March 28, 2016.

March 29, 2016 in Current Affairs, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0)

Monday, March 21, 2016

Mistake That Taxpayers Should Avoid Making

Tax mistakesAccording to information put out by the IRS, taxpayers are 20 times more likely to make an error if they file a paper tax return instead of e-filing online.  There are millions of Americans who still continue to file paper tax returns each year.  One big difference between e-filing and filing a paper return is that the e-filing program will typically check for errors.  “For example, if you omit a digit from your Social Security number, or you add up deductions incorrectly, the program can catch things like that.”  These programs are not perfect and there are some errors that can still manage to slip through the cracks, but the chance of making an error is minimized by using an e-filing program.  If people have a choice e-filing is probably the best option.

See Matthew Frankel, This Mistake Makes You 20 Times More Likely to Mess Up Your Taxes, My San Antonio, March 21, 2016.

March 21, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Wednesday, March 16, 2016

Red Flags That IRS Agents And Examiners Look For

IRSThis article provides a list of the red flags that IRS agents and examiners look for when deciding who to audit. Making a lot of money or failing to report all taxable income can draw the attention of the IRS. People who make higher-than-average deductions or who take out large charitable deductions can also be subjected to increased scrutiny. Running a small business or writing off losses for a hobby are things that the IRS looks into. The IRS will also examine people who engage in currency transactions or who claim the home office deduction. People who trade in securities and claim day-trading losses on schedule c also need to be careful. The IRS also pays special attention to those who take early payouts from an IRA or 401(k) account. These are just a few of the red flags that this article identifies.

See “Red Flags” To The IRS Agents And Examiners, Foodman CPAs & Advisers, March 16, 2016.

March 16, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Wednesday, March 2, 2016

Proposal To Limit The Duration Of GST Tax Exemption

TreasuryThe Department Of Treasury has recently released a series of proposals in the Treasury Green Book for the fiscal year 2017. One of the proposals would limit the duration of the generation-skipping transfer (GST) tax exemption. “The GST tax was enacted to prevent the avoidance of estate and gift taxes through the use of a trust that gives successive life interests to multiple generations of beneficiaries.” This tax is placed on gifts and bequests that are made to transferees who are two or more generations younger than the transferor. Under the proposal the GST exclusion allocated to a trust would terminate on the 90th anniversary of the creation of the trust. Each individual has a lifetime GST exemption of $5.45 million. This article provides important details about the treasury proposals in the Green Book and how they will impact trusts.

See Bryan Cave, Treasury Green Book Proposal- Limit Duration of GST Exemption, Wealth Management, February 29, 2016.

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

March 2, 2016 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Trusts | Permalink | Comments (0)

Monday, February 22, 2016

New Data On IRS Audits

Tax auditRecent data released by the IRS shows that the number of Americans being audited is at the lowest level it has been in ten years. The reason for this drop in the number of people being audited is because the IRS has been having to cope with staffing shortages. This may be good news for taxpayers, but it is bad news for the federal budget because the IRS has been collecting less audit revenue due to the workforce shortage. John Koskinen says that the staffing shortage is directly related to budget cuts. “Since 2010, the IRS has seen its budget cut by 18 percent, resulting in 13,000 fewer employees and a drop of nearly 10,000 fewer enforcement staff, according to analysis last fall from the Center on Budget and Policy Priorities.”

See David Schepp, Afraid of an IRS audit? Here’s one reason to chill, CBS News, February 22, 2016.

February 22, 2016 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)