Wills, Trusts & Estates Prof Blog

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

Sunday, November 20, 2016

The Future of Estate Planning Under President Trump

Estate plan2With a recent Republican clean sweep heading to the White House, all eyes are on Washington for the potential elimination of the estate and gift taxes. Repeal of the estate and gift taxes is not entirely certain, but given such uncertainty, the world of estate planning has an unknown future. If the estate tax is repealed, the focus of estate planning would no longer be estate tax planning but asset protection planning. However, if there is no carryover cost basis and step-up basis in the remains, then it can be damaging to remove the assets from the estate as opposed to retaining the property and enjoying a step-up in basis at death. Ultimately, estate planning will be at a standstill for the next several months until it becomes obvious how the Republican Party will deal with the estate tax.

See Jonathan G. Blattmachr & Martin M. Shenkman, The Future of Estate Planning and Potential Repeal Under President Trump, Nerd's Eye View, November 16, 2016.

November 20, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Saturday, November 19, 2016

The Benefits of Grantor Retained Annuity Trusts

GratA grantor retained annuity trust (GRAT) can help families remove their businesses from the taxable estate. This type of trust is established by a grantor, who transfers assets to the GRAT for a specified term. Normally, the GRAT document is written to provide that the grantor (often a parent) retains the right to receive 100% of the initial fair market value of the transferred assets by way of annual fixed payments. With these payments, the grantor receives a rate of return based on an IRS-prescribed interest rate—the “7520 rate.” The benefit of a GRAT is that if at the end of the trust’s specified term assets remain in the trust, then the named beneficiaries inherit the asset without additional gift tax consequences. On the other hand, the major problem with a GRAT is that if the grantor dies within the specified term, the assets remaining in the trust revert back to the grantor’s taxable estate, not evading any gift taxes. 

See Craig W. Smalley, The Beauty of Grantor Retained Annuity Trusts, Accounting Web, November 18, 2016.

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

November 19, 2016 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Summary on the True and Wandry Cases & Price Adjustment Clauses

Price adjustment clauseSteve R. Akers recently published a Summary entitled, True v. Commissioner, Tax Court Docket Nos. 21896-16 and 21897-16 (petitions filed October 11, 2016): IRS Attack on Wandry” and Price Adjustment Clauses, Bessemer Trust (Nov. 2016). Provided below is a synopsis of the Summary:

Mr. True made gifts of interests in a family business to one of his daughters and made sales of the business interests to all of his children and a trust. The transfers were made based on an appraisal from a recognized reputable national appraisal firm. The transfers to his children were subject to a “transfer agreement” with a defined value/price adjustment provision. The spouses made the split gift election, so any gift was made one-half by each spouse; hence separate Tax Court petitions for Mr. and Mrs. True.

A gift of units in the family business was made to one daughter (Barbara True), and the transfer agreement provided that if the transfer of those interests is determined for federal gift tax purposes to be worth more than the anticipated $34,044,838 amount of the gift, “(i) the ownership interest gifted would be adjusted so that the value of the gift remained at $34,044,838, and (ii) Barbara True would be treated as having purchased the ownership interests that were removed from her gift.”

Sales of business interests were made to that daughter, the other two children, and a trust. According to the petition, the transfer agreement for the sales to his children “provided that if it is determined for federal gift tax purposes that the interests sold were undervalued by FMV Opinions, the purchase price would be increased to reflect the finally-determined fair market values.”

The IRS has alleged a gift tax deficiency of $16,591,418 by each of Mr. and Mrs. True. The taxpayers contend that the valuations were correct, but if the transferred interests are determined to have a higher value, no gift should result because of the price adjustment provisions in the transfer agreement. Karen S. True v. Commissioner, Tax Court Docket No. 21896-16, and H.A. True III v. Commissioner, Tax Court Docket No. 21897-16 (petitions filed October 11, 2016).

The IRS filed a nonacquiescence in the Wandry case (a case approving a transfer of that percentage interest in an LLC equal to a specified dollar value), and has indicated informally that it is still looking for the “right case” to mount another attack on Wandry clauses. Apparently, this is that case.

Mr. Akers goes on to describe some of the planning observations from this case, which include the general description of defined value clauses, formula allocation clauses, the formula transfer clause, the distinction of True clause, sale transactions with defined value transfers, the good faith independent appraisal, the current status of Wandry clauses, and “the right case.”

November 19, 2016 in Estate Planning - Generally, Gift Tax | Permalink | Comments (0)

Thursday, November 17, 2016

Tax Tasks to Complete Before the End of 2016 in Light of Trump's Election

Trump tax planIn light of Donald Trump’s election and his pre-election tax platform, you should consider several tax planning strategies as part of your year-end planning. McManus & Associates have listed the ten items below to complete before the end of 2016.

  1. Accelerate your income tax deductions.
  2. Postpone receipt of income.
  3. Do not buy any capital assets this year.
  4. Make gifts to charities and family foundations with appreciated assets.
  5. Harvest losses to offset capital gains.
  6. Establish and fund qualified plans.
  7. Identify assets and amounts to make proper GRAT distributions before April 17, 2017.
  8. Make annual exclusion gifts to chosen loved ones of $28,000 (per married couple).
  9. Make distributions of income from trust accounts and estate accounts to lower the income tax liability.
  10. Host annual meetings for your family office, partnerships and foundations.

 See Top 10 Tax Planning Tasks to Complete Before the End of 2016 in Light of President-Elect Trump’s Proposals, McManus & Associates, November 16, 2016.

Special thanks to Lauren DuBois (Media Inquiries, McManus & Associates) for bringing this article to my attention.  

November 17, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Resource Links | Permalink | Comments (0)

Friday, November 11, 2016

Article on Estate & Gift Taxation of Nonresidents

Taxation nonUSJohn R. Strohmeyer recently published an Article entitled, Estate and Gift Taxation of Nonresidents, November/December Probate & Property (2016). Provided below is an abstract of the Article:

The digital economy makes it easy for people and money to move across international borders. If the United States is not involved, then this movement will not have an effect on a person’s U.S. tax situation, and in general a nonresident of the United States will have few, if any, interactions with the IRS. But as more and more foreign citizens look to the United States as a place to invest, it becomes important for planners to be aware of the transfer tax laws that apply to nonresidents. Why? When a nonresident becomes a “resident” of the United States for transfer tax purposes, the rules change dramatically, and the tax consequences, if not planned for, can be severe.

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

Thursday, November 10, 2016

Is an Inheritance Tax on the Way?

Inheritance tax1Most people are aware of the estate and gift taxes, but is an inheritance tax on the way? Proposals under IRC § 2801 may require certain donees to pay a 40% inheritance tax. More specifically, if a U.S. domiciliary receives a bequest from a foreign trust—unless an exception applies—it is presumed that the beneficiary is subject to a tax under the proposed rule. The two exceptions to this tax are when a bequest was included in a filed U.S. estate or gift tax return and the tax due was paid, and when the bequest is to a spouse for which a marital deduction applies. In order to prove that the transfer was not a covered bequest, you must reasonably find that the transferor was not a covered expatriate. Over the long run, legislative action is required to make the tax workable, and Congress should require the Treasury to maintain a list of covered expatriates.

See Stephen Liss & Marianne R. Kayan, Inheritance Taxes Return to U.S. Soil, Wealth Management, November 9, 2016.

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

November 10, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Wednesday, November 9, 2016

What Do Warren Buffet's Tax Returns Really Say?

BuffetIn Donald Trump’s second presidential debate, he claimed that Warren Buffett, similar to him, deducted net operating losse. In response, Buffett released a summary of his 2015 federal tax return. Whether his intention was to prove a point against Trump, his returns show that he astutely minimized his federal income, estate, and gift tax burdens. Buffet made sizable contributions ($2.8 billion) to the Gates Foundation, which avoids the payment to public services that, in Buffet’s words, helped create that appreciation. Additionally, his contribution avoids estate and gift taxes. The ultimate purpose of releasing his tax returns is seemingly contradictory to his position.

See Edward A. Zelinsky, Warren Buffet’s Taxes: The More Complicated Narrative, OUPblog, November 7, 2016.

November 9, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, November 7, 2016

How QPRTs Can Help Secure Your Properties

QprtsQualified personal residence trusts (QPRTs) hold property that can be transferred at a discount to beneficiaries after a certain time period, essentially reducing the gift tax and removing the property from the estate. QPRTs are good for couples with assets worth more than $10 million or with properties likely to rise in value. These trusts help secure homes with heightened emotional value because, oftentimes, they are not seen as a classic investment. The QPRT can also hold a primary home or a vacation home as well as fractional interests of a home to be divided up amongst children. The more time the home spends in the trust, the bigger the discount because the value of the home is assessed at the time of the trust’s establishment. However, the grantors must outlive the specified term or else the property value will be assessed at death and included in the estate. Ultimately, QPRTs work best when families can agree on how a house fits into their legacy.

See Matt Miller, Holding Vacation Homes in Trust, Barron’s, November 4, 2016.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

November 7, 2016 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Tuesday, November 1, 2016

2017 Gift and Estate Tax Rates for US and Non-US Citizens

Gift and estate taxAmounts gifted beyond the annual gift exclusion are taxed at a 40% rate; however, not all gifts are taxed, like those to US citizen spouses and charities. Subsequently, US citizens and permanent residents are subject to the US estate and gift tax on their worldwide assets. On the other hand, non-US citizen spouses receive taxes on gifts. These non-US citizens can receive the benefits of citizen status by using a Qualified Domestic Trust in which the estate tax is deferred until actually paid out. Take a look at the chart in the Article to see how estate and gift taxes are applied for US and non-US citizens.

See 2017 Estate and Gift Tax for Non-US Citizens, Clark Skatoff Attorneys at Law, 2016.

November 1, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Friday, October 28, 2016

Article on the Estate Planning Challenges of Digital Assets

Digital assets actElizabeth Ruth Carter recently published an Article entitled, Estate Planning for Digital Assets: Assigning Tax Basis and Value to Digital Assets, LSU 46th Annual Estate Planning Seminar (2016). Provided below is an abstract of the Article:

These materials were prepared in conjunction with the LSU 46th Estate Planning Seminar. They explore the various types of digital assets -- including social media (Facebook, Twitter, Linked In, etc.), audiobooks, music and video files, and bitcoin -- and the estate planning challenges these assets present. These material also consider the federal estate and gift tax issues posed by digital assets, including questions related to small business valuation.


October 28, 2016 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Technology | Permalink | Comments (0)