Wills, Trusts & Estates Prof Blog

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

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Sunday, April 19, 2015

House Bill to Protect Political Contributions from Gift Tax Passes

BillThis week the House has voted in favor of a bill that would prevent the IRS from imposing gift tax on political contributions. This bill is being framed as a preemptory protection since the IRS has not sought to  do so before. A companion Senate bill has been introduced.

Special thanks to Jim Hillhouse for bringing this article to my attention.

See Bloomberg News, Mega-Donors Freed From Gift Tax They Never Paid, Private Wealth, Apr. 17, 2015.

April 19, 2015 in Gift Tax, New Legislation | 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)

Thursday, April 2, 2015

Methods Diverge in Analyzing Effect of Tax Law Changes

Tax QuestionsWhen analyzing the effect of tax law changes, such as those related to charitable giving, two divergent methods emerge to predict the effects of proposed changes. Static scoring predicts that as tax rates increase so does government revenue, and as they decrease so does revenue. Dynamic scoring predicts the opposite, with increased taxes resulting in decreased revenue and decreased taxes resulting in increased revenue, because behavioral reactions to the change cause the opposite effect. The Joint Committee on Taxation (JCT) uses static scoring while the House of Representatives uses dynamic.

See Conrad Teitell, Charitable Gifts: Tax Reform?, Wealth Management, March 30, 2015.

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

April 2, 2015 in Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, March 28, 2015

Gift Tax Season is Here

GiftsThe filing deadline for gift tax returns is quickly approaching. One benefit of filing a gift tax return is starting the Statute of Limitations, which gives the IRS three years to challenge the gift valuation. However, to successfully begin the limitations period, adequate notice must be given, which means including an appraisal or an equivalent showing of how the gift was valued.

See John P. Dedon, Gift Tax Returns and Adequate Disclosure, The National law Review, March 26, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

March 28, 2015 in Gift Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, March 26, 2015

Covering Your Basis

InvestmentWhen selling an asset such as a stock, you owe capital gains tax on the difference between the sale price and what you paid for it, which is your cost basis.  Yet, if you inherit certain assets, including marketable securities, you can “step up” their tax basis to whatever they were worth at the benefactor’s death.  This means highly appreciated inherited stock can be sold immediately with no capital gains, or later, when all the gains before you inherited are not counted.

There are several ways to minimize capital gains tax.  One includes making charitable donations.  For gifts of marketable securities to a public charity, donors are entitled to an income tax deduction for up to 30 percent of adjusted gross income if the stock is held for more than a year. 

Another tax-planning tool is to convert a Traditional IRA to a Roth.  Although you must pay income tax on the amount you are converting, after that no income tax is collected on distributions by you or your heirs.  Moreover, any withdrawals by you or your heirs do not get added to taxable income. 

Finally, married couples who live in a community property state have a basis advantage.  Most of what you acquire once you are married and living in a community property state, you and your spouse are each considered a half-owner.  Thus, when the first spouse dies, both halves of the property get a step up in basis, effectively minimizing capital gains tax if the surviving spouse sells the property.

See Deborah L. Jacobs, What Every Investor Needs to Know About Basis, Morningstar, March 25, 2015.

March 26, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income 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)

Wednesday, March 4, 2015

CLE on Planning Techniques for Large Estates

CLEThe American Law Institute Continuing Legal Education (ALI CLE) is presenting a CLE entitled, Planning Techniques for Large Estates, on April 8 – 10, 2015 in Scottsdale, AZ and via webcast.  Here is why you should attend:

 Planning for large estates continues to be a technically demanding and dynamic area of practice. Don’t miss the best opportunity in 2015 to fine tune your knowledge and stay up-to-date! 

Attend this highly-rated course and get the latest information and planning techniques specifically for large estates. Learn, network, and strategize with your peers and a highly experienced faculty of trust and estate practitioners from across the country.

Featuring in-depth discussions of estate and gift tax issues and planning techniques, this year’s topics include:

  • business succession planning
  • charitable planning issues
  • legislative developments and outlook
  • remainder interest purchase planning techniques
  • postmortem estate planning
  • valuation issues
  • ethics and privileges
What You Will Learn

Get the tools you need to advise your clients on the latest wealth planning and tax strategies. Led by a nationally recognized faculty of trust and estate experts, this advanced course addresses the most sophisticated problems and considerations unique to planning large estates.

Whether you are a new or returning attendee, this program will keep you on the leading edge of wealth planning and estate practice. New topics this year include:

  • Business Succession Planning: Keeping It in the Family
  • Striking the Balance: Fiduciary Income, Net Investment Income, Capital Gains, and Other     Non-Transfer Tax Consequences of Transfer Tax Planning
  • Generation Skipping Transfer Tax Planning
  • Legislative, Valuation, and Other Developments 2015
  • Creative Uses of Remainder Interest Purchase Planning Techniques
  • A Potpourri of Charitable Planning Issues (and Traps) You Might Have Never Thought About Before

Discussions are based on changing fact patterns and solutions, rather than simply principles of law or statutory provisions. Each topic is explored in depth, presenting key issues, alternative approaches, and practical planning strategies.

March 4, 2015 in Conferences & CLE, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 17, 2015

Tax Issues When Closing An Estate

Estate tax return

When a loved one dies, the resulting tax issues must be handled.  The person to handle these issues is typically identified in the decedent’s will as executor of the estate.  However, if there is not a will, the probate court will appoint someone to be the administrator.

An executor’s job is to identify the estate’s assets, pay off its debts and then distribute whatever is left to the rightful heirs and beneficiaries.  He or she is also required to file any necessary tax returns and pay taxes.  If this is handled incorrectly, the IRS can come after the executor personally for tax underpayments.  Below are four major steps to be considered:

  1. Filing the Final 1040.  The 1040 covers the period from Jan. 1 through the date of death.  If the decedent was unmarried, the final 1040 is prepared in the usual fashion.  When there is a surviving spouse, the final 1040 can be a joint return filed as if the decedent were still alive.  Also, look out for medical expenses, as large uninsured medical expenses must be treated differently for tax purposes. 
  2. Filing the Estate’s Income-Tax Return.  Once the individual has died, any income generated by his or her holdings after death is now part of the estate and that income is subject to taxes. 
  3. Filing the Estate Tax Return.  The federal estate tax return is filed on Form 706.  If the decedent did not make any sizable gifts before dying, no estate tax is due and no 706 form is required.  If sizable gifts were made, anything over $14,000 is added back to see if the estate tax exemption is surpassed. If so, then there will be a 40% federal estate tax on the excess. 
  4. Miscellaneous Details.  If you’ll be filing Form 1041 and/or Form 706, you need to get the estate a federal employer identification number (EIN). Next, you should file Form 56 (Notice Concerning Fiduciary Relationship), which notifies the IRS that you’ll be acting on behalf of the estate regarding tax matters.  You should also open a checking account in the name of the estate with funds transferred from the decedent’s accounts.  The executor has the legal power to do this.

See Bill Bischoff, 4 Tax Issues to Consider When You Close an Estate, Market Watch, Feb. 17, 2015.

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

February 17, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Monday, February 16, 2015

Rules for Noncash Charitable Deductions

Charity 3

Over the years the rules on giving have tightened.  If you want to claim itemized deductions for noncash charitable donations on you 2014 Form 1040, brace yourself.

Because unscrupulous taxpayers once made a habit of claiming bogus and inflated charitable write-offs, the federal government has tightened up over the years.  Unfortunately, innocent taxpayers are penalized as a result.  Below is a quick summary of the rules that apply to the most-common types of noncash charitable donations:

  1. For a donation of a noncash item worth less than $250, you need a receipt from the charity.  You must have the receipt in hand by the time you file your return, however, don’t file it with your return.
  2. TO deduct a donated noncash item worth $250 to $5,000, you need a contemporaneous written acknowledgement from the charity that meets IRS guidelines. 
  3. To deduct a donated noncash item worth $501 to $5,000, you need the written acknowledgement plus written evidence that supports the time’s acquisition date, its fair market value, how much it cost, etc.  Fill out this in formation on IRS Form 8283 and keep the written evidence with your tax records.
  4. For donated clothing and household items, the general rule says you can only claim deductions for stuff that is in “good condition or better.” However, you can deduct the fair market value of an item that's not in good condition or better if you attach a written qualified appraisal that values the item at more than $500.
  5. For a noncash item worth over $5,000, you generally need what is listed in Rules 2 and 3 plus a written qualified appraisal.
  6. Special restrictions apply to donations of vehicles, planes, and boats. The most important thing to know is that your charitable write-off will usually be limited to the amount of sales proceeds when the charity sells the vehicle, plane or boat.

See Bill Bischoff, 7 Tax Rules That Apply to Noncash Charitable Donations, Morningstar, Feb. 16, 2015.

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

February 16, 2015 in Estate Planning - Generally, Gift Tax | 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)