Wills, Trusts & Estates Prof Blog

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

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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)

Tuesday, September 16, 2014

Making Charitable Donations With Life Insurance

Life insurance

Each year millions of Americans make donations of cash and property to the charities of their choice.  While these donations can provide valuable tax deductions, many donors wish that they could do more for the charities they support.  Thus, it would be wise for some donors to consider using their life insurance as a more effective means of leveraging the support they provide. 

One way of doing this is to gift a life insurance policy, which can in turn greatly reduce the donor’s taxable estate and save thousands of dollars in estate taxes.  There is no limit on the size of the policy that may be donated, since charitable donations have no ceiling for estate tax purposes.

Naming a charity as a beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy.  However, this strategy does not offer the income tax advantages that come with the gifting policy, although it still reduces the donor’s estate by the amount of the death benefit. 

It is also possible for policyholders to receive the dividends paid to their life insurance policies in cash and donate them to a charity.  The dividends donated are deductible in the same manner as premiums paid on a gifted policy.

See Mark P. Cussen, Using Life Insurance to Make Charitable Donations, Investopedia.

September 16, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 10, 2014

Estate and Income Tax Advantages of 529 Plans

Student loan

Taking advantage of 529 plans is appropriate for parents and grandparents seeking to amass funds for run-away college tuition costs.  Contributions to a 529 plan are treated as gifts for tax purposes and the contributions qualify for the $14,000 annual gift tax exclusion.  Contributions can be pre-funded for five years, meaning $70,000 per parent.  Hence, funds in the 529 are removed from the donor’s estate faster than if contributions were made each year. 

For federal income tax tactics, the investment grows tax-free, and distributions to pay for the beneficiary's college costs are tax-free. Keep in mind, state law can affect the state income tax treatment.

There are other advantages, such as the donor controls the funds in the 529.  The only disadvantage for 529’s is if an individual is relying on financial aid, the 529 can be considered an asset, depending on who set up the plan. 

See 529 Plans: Estate Tax and Income Tax Advantages, The National Law Review, Sept. 9, 2014.

September 10, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 9, 2014

Article on The Federal Tax Treatment of Disclaimers of Future Interests

Gift BoxTrent S. Kiziah recently published an article entitled, The Federal Tax Treatment of Disclaimers of Future Interests: A Call for Reform, 39 ACTEC Law Journal No. 1 & 2 (Spring/Fall 2013). Provided below is the abstract of the article:

Federal tax laws essentially preclude individuals with a future interest from disclaiming because the time in which a qualified disclaimer can be executed may pass before the person becomes aware of the interest and long before the interest becomes possessory and fixed as to quality and quantity. This article examines the state of the law prior to enactment of these limiting tax provisions, examines the call for reform by commentators, and examines the legislative history resulting in the current law. The author asserts Congress made an informed decision albeit a poor one. The author recommends Congress revisit the issue and enact legislation to permit an individual to disclaim within a reasonable period of time after the later of occur of (1) becoming aware of the future interest or (2) the future interest becoming indefeasibly fixed.

September 9, 2014 in Articles, Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Monday, September 8, 2014

Considerations for Gifting to Grandchildren

Gift BoxThe desire of grandparents to help their grandchildren overcome financial obstacles to pursue projects and opportunities prompt many grandparents to gift to their grandchildren. Here are six considerations that should be included in the decision making-process for whether to gift to grandchildren:

  1. Should the gift really be defined as a gift, or rather a loan or an inheritance advance
  2. If the grandparent wants to keep gifts to all grandchildren equal, need based, or preference based and how each will affect the overall family dynamic
  3. Whether the gift is large enough to create tax consequences
  4. If a 529 plan is a more desirable option, if the gift is intended to assist with future higher education expenses.
  5. Can the gift be made without depleting the grandparent’s savings and ability to provide for their own financial needs
  6. The effect that the gift will have on receiving health-care benefits, such as Medicaid, if needed.

See Ryan Barry, Six Things to Consider Before Making Gifts to Grandchildren, JD Supra, Sept. 4, 2014.

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

September 8, 2014 in Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 2, 2014

IRS 2014-2015 Priority Guidance Plan Released

IRSThe 2014-2015 Priority Guidance Plan, which lists 317 priority projects for the IRS, was released last Tuesday. Among the many tax issues to be addressed through the projects, estate and trusts issues have made the lists. The plans provide the IRS with priorities for releasing guidance on tax issues, and are subject to change throughout the year so that the IRS can address new developments and tax concerns.

See Mike Godfrey, IRS Issues 2014-2015 Priority Guidance Plan, Tax News, Aug. 29, 2014.

September 2, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, August 30, 2014

Tax Management Portfolio on Estate Planning

Tax PlanningThe third edition of the Tax Management Portfolio, Estate Planning, has been published by William P. Streng, Esq. (Vinson & Elkins Professor of Law, University of Houston Law Center). This Portfolio provides helpful guidance for estate planning professionals. Provided below is a description of the Portfolio from Bloomberg BNA.

Estate Planning is designed as an authoritative and practical working tool for attorneys, accountants, and others involved in estate planning practice. The basic estate, gift, and trust planning concepts are presented in a descriptive and conveniently accessible form. Written by William P. Streng, Esq., Vinson & Elkins Professor of Law, University of Houston Law Center, and Consultant, Bracewell & Giuliani LLP, this Portfolio analyzes the development of an estate planning strategy; fundamentals of the federal transfer tax system and related federal income tax rules; lifetime donative asset transfers; gratuitous property transfers at death; generation-skipping transfers; special property transfer planning considerations (e.g., community property, life insurance, charitable transfers, closely held corporations); and post-mortem planning.

August 30, 2014 in Books, Books - For Practitioners, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

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)