Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Tuesday, August 12, 2014

Three Estate Planning Tips for Limiting Taxes

Tax CutFreezing the value of assets and keeping the value of an estate from appreciating overtime can reduce the amount of taxes for an estate. Here are three estate planning tools to reduce the taxes faced by the estate.

  1. Put assets into a Family Limited Partnership to keep asset value from increasing and decrease taxes
  2. Create an Intentional Defective Grantor Trust and pay the taxes with non-trust funds to maximize trust income and decrease the value of the estate
  3. Use a Grantor Retained Annuity Trust to freeze the value of assets and keep the overall taxable value of the estate from increasing

See Brian Luster & Steven Abernathy, 3 Ways to Avoid Tax Hits in Estate Planning, Medical Economics, June 10, 2014.

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

August 12, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, August 11, 2014

State Income Tax: Relief Is In Sight

State income tax

Corporate tax inversion is the tax strategy whereby large multinational corporations shift assets or company headquarters to other countries in order to profit from a lower corporate income tax rate.  While some politicians and Americans believe tax inversion strategies are unpatriotic, others retort that corporations are following the law and capitalizing on the rules of the game they are given. 

If you are one of the individuals who lean on the side of wanting to take advantage of all legally available options to reduce taxes and feel left out, your wait is over.  A strategy called the “personal tax inversion” can be used to avoid potentially hundreds of thousands of dollars in state income taxes.  The personal tax inversion strategy is somewhat new, and can help you pay less state income tax.  However, it is not right for every situation. 

With personal tax inversion, there is a way to shift assets to a state without any income tax.  You are able to accomplish this by shifting assets to a trust located in a different state within the United States. 

By using a non-grantor trust, you can place assets into a trust and you are no longer considered the “owner” for tax purposes.  Thus, the trust itself, rather than you, is responsible for paying income tax.  If the trust is administered in a tax-free state, the trust pays no tax.  However, there is a caveat.  If you transfer assets outside of your control, you may pay gift taxes.  To remedy this situation, you may structure an Incomplete Non-Grantor Trust (NING) in a state such as Nevada, Delaware, or Alaska.  The NING is a perfect solution because it gives up the perfect amount of control. 

See Robert Pagliarini, Avoid State Income Tax With A Personal Tax Inversion, Forbes, July 31, 2014. 

August 11, 2014 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, July 31, 2014

House Passes Charitable Giving Tax Breaks

LawThe “America Gives More Act of 2014” passed in the House earlier this month. If passed the act will extend the charitable IRA rollover and the enhanced conservation easement breaks which have expired. The act would also enact two new charitable giving tax breaks, which include extending the time to make charitable gifts to the tax return due date and changing the two tier excise tax for investment earnings by private foundations to a flat 1% rate.

 See Ashlea Ebling, 4 Charitable Giving Tax Breaks in Play, Forbes, July 18, 2014.

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

July 31, 2014 in Estate Planning - Generally, Gift Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 22, 2014

Charitable Extenders Bill Passes the House

LawH.R. 113-4719 went from the Rules Committee to the House last week. The bill, which includes charitable extenders among its five measures, overcame a motion to send it to the Ways and Means Committee to limit the extenders and was approved by the House. Though White House senior advisors will likely recommend that President Obama veto the bill, it is unclear what the President will do if the bill comes across his desk.

See, House Approves Charitable Extenders, Including a Permanent IRA Rollover, Charitable Planning, July 18, 2014.

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

July 22, 2014 in Estate Planning - Generally, Gift Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, July 21, 2014

529 Plans for Grandparents


Many grandparents want to help their grandchildren pay for college, but do not know the best way of going about it.  According to a Fidelity Investments study, nearly half of grandparents expect to contribute to their grandkids’ college savings, with more than a third expecting to give $50,000 or more.  While very generous and thoughtful in nature, these contributions can also have significant tax and estate planning benefits for grandparents. 

A 529 plan is a college savings investment account that provides tax-free growth as long as the money is put toward tuition and most types of college expenses such as fees and books.  Grandparents can use 529 accounts to procure tax deductions or diminish the value of their taxable estates. 

One way to showcase 529 accounts is to highlight their advantages over other savings strategies.  For example, grandchildren who receive Series EE bonds as gifts can later be inundated with federal income taxes on the interest if they do not use funds for college.  Contrastingly, a 529 plan provides for tax-free distribution.  It also allows grandparents to give the funds to another grandchild if the intended recipient does not go to college. 

One of the caveats of a 529 plan is that it could make a grandchild ineligible for financial age.  This is because once the money is withdrawn for the beneficiary, it will count as income that schools use to determine financial aid awards.  However, grandparents can avoid this problem by waiting until their grandchild’s junior or senior year to distribute the money. 

See Robyn Post, Your Practice—Selling Grandparents on the Perks of 529 College Savings Plans, Reuters, July 18, 2014.

July 21, 2014 in Elder Law, Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Section 7520 Rates for August

RatesThe IRS has released the updated Section 7520 rates, which are used for charitable contributions. The updated August rates can be seen here.

See, IRS Updates Applicable Federal Rates for August 2014, Charitable Planning, July 18, 2014.

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

July 21, 2014 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, July 17, 2014

Using an LLC as an Estate Planning Tool

Couple doing paperwork

The Limited Liability Company (LLC) is a hybrid legal entity that is beneficial not just for small-business owners, but is also a powerful tool for estate planning.  If you want to transfer assets to your family members, but are worried about gift and estate taxes, an LLC can protect assets during your lifetime and reduce taxes owed by you or your family members.

Creating a family LLC with your children allows you to reduce not only the estate taxes your children would be required to pay on their inheritance, but it also enables you to distribute inheritance to your children during your lifetime, without being bludgeoned by gift taxes.  This is made possible while also providing the ability to maintain control over your assets. 

In a family LLC, the parents maintain management of the LLC, with children or grandchildren holding shares in the LLC’s assets, however, they do not have any management or voting rights.  This allows parents to buy, sell, trade or distribute the LLC’s assets.  Thus, parents can maintain control over the assets and protect them from financial decisions made by younger members. 

Upon establishing your family LLC, you can begin transferring assets pursuant to your state’s legal process.  You subsequently decide on how to translate the market value of those assets into LLC units of value, similar to stock in a corporation.  It then becomes possible to transfer ownership of your LLC units to your children or grandchildren. 

See Michelle Ullman, Using an LLC for Estate Planning, Investopedia, July 15, 2014.

July 17, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Article on Net Gifts

Gift 2

Tiffany B. Carmona (Bessemer Trust, Chicago) recently published an article entitled, Client Out of Exemption? Consider a Net Gift, Probate & Property Vol. 28 No. 4, 43-47 (July/August 2014).  Provided below is a portion of the article’s introduction:

An unprecedented wave of large lifetime gifts were made in 2011 and 2012 in light of the increased amount that could be given away without incurring federal gift tax under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRA 2010), Pub. L. No. 111-312, 124 Stat. 3296, and its sunset provision, which caused many taxpayers to anticipate an end to the opportunity to use the increased exclusion come 2013.  Instead, 2013 brought with it the American Taxpayer Relief Act of 2012 (ATRA 2012), Pub. L. No. 112-240, 126 Stat. 2313, which continued the increased basic exclusion amount first codified by TRA 2010.

As a result of those large 2011 and 2012 gifts, many high net worth taxpayers are devoid of exclusion for future gifting, apart from the inflation adjustments to the basic exclusion amount that ATRA 2012 sustained as well.  Being out of exclusion does not foreclose the possibility of continued planning for those taxpayers, however, because certain techniques in the estate planner’s toolkit can be employed without the application of exclusion or the payment of gift tax by the donor.  Among these is the net gift. 

July 17, 2014 in Articles, Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Monday, July 14, 2014

New Edition of Federal Taxation of Estates, Trusts and Gifts: Cases, Problems and Materials Released

Bloom2Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law Albany Law School) and Kenneth F. Joyce (SUNY Distinguished Teaching Professor of Law Emeritus SUNY Buffalo Law School) have recently released the Fourth Edition of their outstanding casebook entitled Federal Taxation of Estates, Trusts and Gifts: Cases, Problems and Materials along with a comprehensive Teacher's Manual.

Here is the publisher's description of the book:

This new edition of Federal Taxation of Estates, Trusts and Gifts again blends a traditional casebook approach with a problem method, to develop student understanding of the relevant rule structure pertinent to the transfer of wealth. The transactional organization facilitates student comprehension by repeatedly exposing students to certain themes, such as reason for deductibility, taxation based on passage of economic benefit, and valuation. This Fourth Edition also uses structured problems to facilitate an understanding of the doctrinal framework, analytical processes, and policy issues.

Federal Taxations of Estates, Trusts and Gifts presents a comprehensive study of the tax aspects involved in the wealth transfer process: Chapter 1 provides indispensable background on the federal wealth transfer and related income tax systems. Chapter 2 provides an overview of each of the tax systems. Chapters 3, 4, and 5 outline the basic structure of the gift, estate, and generation-skipping transfer tax systems and include an examination of underlying policy questions. Chapters 6 through 13 explore how the transfer tax systems, plus the relevant income tax rules-especially the grantor trust provisions of subchapter J-apply to various transactions, most of which are in the nature of testamentary substitutes. The income taxation of estates and non-grantor trusts and their beneficiaries is comprehensively covered in Chapter 14. The book ends with Chapter 15, which provides options for reforming, as well as alternatives to, the tax systems.

The Fourth Edition contains not only the changes made by the American Taxpayer Relief Act of 2012 as well as more recent developments, but also highlights a variety of estate planning considerations. While relying on well-recognized leading cases, it also includes recent and significant cases, rulings, and regulations that either break new ground or expand on existing law.

July 14, 2014 in Books - For the Classroom, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Friday, July 11, 2014

The Drawbacks of FLPs

ConFamily limited partnerships can be beneficial for shielding assets from creditors, lowering estate and gift taxes, and protecting a family business. However, FLPs have their drawbacks, such as:

  • Expense: FLPs can incur serious set up costs, including legal and appraisal fees.
  • Limitations: Not all assets are appropriate for FLPs, and including real property can result in a high tax bill.
  • Drama: FLPs do not resolve any conflicts between children after the parents are gone.
  • More limitations: The assets in the FLP are for business, not personal use.

See Tom Nawrocki, 6 Pitfalls That Clients Eyeing an FLP Need to Consider, Life Health Pro, July 9, 2014.

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

July 11, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)