Wills, Trusts & Estates Prof Blog

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

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Tuesday, February 10, 2015

How the President's Tax Proposals Are Affecting Estate Planning

Estate tax2

In President Obama’s proposal for the fiscal year 2016 budget, he keeps many of his past proposes that include restoring transfer taxes and curtailing various estate planning techniques.  The President is also introducing some bold, new ideas.  Some of the proposals in the budget that would affect estate planning include:

  • Eliminating the Stepped-Up Basis at Death and Treating Transfers of Appreciated Property as Sales.  Under this new proposal, the donor or deceased owner of an appreciated asset would realize a capital gain at the time the asset is gifted or bequeathed to another.  The gain would be taxable income to the donor or the deceased’s estate. 
  • Restoring the Estate, Gift, and Generation-Skipping Transfer Tax.  This proposal has been on the President’s radar for quite some time.  In 2009, the top tax rate was 45%. The exemption amounts were $3.5 million for estate and GST taxes, and $1 million for gift taxes, with no indexing for inflation. Portability of the deceased spouse’s unused estate and gift tax exemptions would remain available. 
  • Restrictions on Grantor Retained Annuity Trusts (GRATs).  This would require GRATs to have a minimum ten-year term and a maximum term of the annuitant’s life expectancy plus ten years.  Moreover, the proposal would also require that a GRAT’s remainder interest at the time of creation have a minimum value of the greater of 25% of the value of the assets contributed or $500,000.
  • Expanding the Definition of “Executor.”  The Tax Code would expressly define an executor as applicable for all tax purposes, including authorization for the executor to handle the decedent’s pre-death tax liabilities.
  • Extending Liens on Estate Tax Deferrals for Certain Estates.  For estate tax deferrals where the estate consists largely of an interest in a closely held business, the proposal would extend the §6324(a)(1) estate tax lien through the entire deferral period, instead of the current ten-year period from the date of death. 

See Michelle L. Vesole, So Much for a Permanent Estate Tax Regime: The President’s Tax Proposals Affecting Estate Planning, Bloomberg BNA, Feb. 9, 2015.

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

February 10, 2015 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, January 12, 2015

GST Tax Exemption Retained After Trust Merger

Gavel2Private Letter Ruling 201448018 allowed for two identical trusts to be merged into one trust without forfeiting the trust's exemption from generation-skipping transfer tax. The two identical trusts, each created by a member of a married couple, had the same grandchildren beneficiaries, and the merger would not create new beneficiaries. Further no additional principal was added to either trust after they became irrevocable on the death of the grantor, which occurred prior to the Sept. 26, 1985 deadline for GST tax exemption.

See Dawn S. Markowitz, Trust Consolidation, Dec. 1, 2014.

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

January 12, 2015 in Estate Planning - Generally, Generation-Skipping Transfer Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Estate Tax Repeal Bill

Tax CutThe Death Tax Repeal Act (H.R. 173) has been filed by Texas Congressman Mac Thornberry that will repeal the Federal estate, gift, and generation-skipping taxes if passed. Thornberry described the "death tax" as "fundamentally unfair," and expressed concern for the impact of the tax on "small business owners, farmers, and ranchers," in his statements through a press release from his office released January 8, 2015. At the time of the press release there were 36 cosponsors to the bill.

See, Thornberry Introduces The Death Tax Repeal Act, Everything Lubbock, Jan. 10, 2015.

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

January 12, 2015 in Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Friday, December 5, 2014

Tax Reminders Moving Into 2015

Tax CutHere are some tips and reminders for estate, gift, and GST tax exemptions for the new year:

  • The federal estate tax exemption for estate, GST, and gift tax will increase to $5,430,000 in 2015.
  • The annual gift tax exclusion will not increase in 2015, but will remain at $14,000.
  • Portability allows a surviving spouse to increase their tax exemption for both estate and gift tax by using the deceased spouse's unused exemption.
  • Portability is not allowed for GST tax exemption or most state estate tax.
  • There is still time to take advantage of any unused 2014 annual gift tax exclusion, as long as the gifts are completed by December 31.

See Albert W. Gortz, et al., 2015 Estate, Gift and GST Tax Update: What This Means for Your Current Will, Revocable Trust and Estate Plan, The National Law Review, Dec. 3, 2014.

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

December 5, 2014 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, November 29, 2014

Looking Back at Estate Planning in 2014

Look2014 was mostly a year of stability for estate planning, but did include some significant developments. The current exclusion amounts for estate, gift, and generation-skipping transfer tax is at a historical high at $5.34 million currently and expected to be $5.43 million for 2015. Portability for gift and estate tax exclusions by a surviving spouse has been a focus of estate planning considerations this year, as well as heightened attention to income tax as a result of increased income tax rates. One significant development in 2014 that garnered much attention was the US Supreme Court decision in Clark v. Remeker, which held inherited IRAs do not fall under bankruptcy protection.

See David M. Allen, Mal L. Barasch, Victor H. Bezman & Diane B. Burks, 2014 Year-End Estate Planning Advisory, The National Law Review, Nov. 28, 2014.

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

November 29, 2014 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Friday, October 31, 2014

Book on Federal Gift, Estate, and Generation-Skipping Transfer Taxation of Life Insurance

Federal Gift, Estate, and Generation-Skipping Transfer Taxation of Life InsuranceLawrence 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.

October 31, 2014 in Books, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 17, 2014

Article on Gain from the Value of a Good Valuation

Tax QuestionsEdward 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.

September 17, 2014 in Articles, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Friday, June 20, 2014

International Trust Administration

InternationalIt 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. 

June 20, 2014 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Monday, May 26, 2014

New Plans For Estate, Gift, and GST Taxes

 

Estate tax

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.

May 26, 2014 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, May 8, 2014

New Blog on Estate and Gift Tax Valuation

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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.

May 8, 2014 in Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Web/Tech | Permalink | Comments (0) | TrackBack (0)