Wills, Trusts & Estates Prof Blog

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

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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

Congress

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)

Monday, March 9, 2015

PLR on GST and Gift Tax Consequences of Trusts Selling Farm

Gavel2A recent IRS private letter ruling considered the Generation-Skipping Transfer Tax, Gift Tax, and Estate consequences of a proposed sale of a farm owed by two trusts. The two trusts had different grantors, but essentially the same beneficiaries. The trusts had worked out a proposed sale of the farm to a limited partnership, which was owned by a descendent of both trusts' grantors.

In Private Letter Ruling 201509002, it was found that the trusts would not lose their GST tax-exempt status as a result of the sell, the sale would not be considered a taxable gift, and would not add to the amount the beneficiaries must claim in their estates

See Dawn S. Markowitz, GST Tax Exemption Preserved in Sale of Farm, Wealth Management, March 4, 2015.

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

March 9, 2015 in Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, March 6, 2015

Budget Proposal Targets HEETs

Tax4One of the President's budget proposals explained in the Treasury Green Book would "modify generation-skipping transfer (GST) tax treatment of health and education exclusion trusts (HEETs)." This proposed change would only exclude from GST tax, payments for medical care or school tuition when directly received by the provider or school from the donor, and not from a trust, such as a HEET.

See Stephanie Moll, Treasury Green Book Proposal: Health and Education Exclusion Trusts, Bryan Cave, March 5, 2015.

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

March 6, 2015 in Generation-Skipping Transfer Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

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)