Wills, Trusts & Estates Prof Blog

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

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Thursday, July 2, 2015

The Future Of Asset Discounts On Family Transfers Is Uncertain

Estate taxThe IRS is expected to issue proposed regulations by the end of 2015 that would restrict intra-family transfers that are designed to get valuation discounts.  Utilizing discounts on family transfers of closely held business and real estate interests has been a primary estate planning technique used to reduce gift and estate taxes for many decades.  The value of the transferred interests often comes in the form of non-voting stock or non-controlling limited partnership or assignee interest.  The IRS has taken the position that these transfers are not appropriate for a family setting and are done only for tax planning.  In the past the IRS has had limited success in combating these transfers, though that might all change with the new regulations that many expect will come out in the future.

See John P. Dedon, Are Asset Discounts on Family Transfers a Thing of the Past?, The National Law Review, June 30, 2015.

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

July 2, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Monday, June 8, 2015

Americans Paying More Taxes Than They Realize

Tax chartWhen people contemplate taxation they often think about income and property taxes, yet there are a lot of other way Americans are taxed at the Federal and State level that we might not know about.  The author of this column discusses how the goods and services that we buy are subject to a different tax at just about every stage of production and distribution.  There are a wide variety of taxes imposed from the manufacturing stage up to the final retail sales stage.  The burdens of paying these different levels of taxes are often borne by the consumer in the form of higher prices for goods and services. 

See Henry K. Hebeler, Tax rates are far higher than we realize, Market Watch, June 8, 2015.

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

June 8, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Wednesday, May 13, 2015

Talk Charity With High Net Worth Clients

CharityOne of the common habits among the ultra wealthy might surprise some. The habit is charitable giving with upwards of %98 of high net worth households being philanthropically active. However, many of these families give without consulting advisors which may deprive them of benefits that will make every altruistic dollar go further. Different methods of giving may create tax advantages to the donor and some entities may be established, such as a trust, that will allow greater control over the way the donated property is used. Proactively talking about charitable gift planning might yield great benefits to the client and any good causes they seek to advance.

See Paul Hechinger, Don't Skip Charitable Planning for Wealthy Clients, On Wall Street, May 10, 2015.

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

May 13, 2015 in Estate Planning - Generally, Gift Tax, Wills | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 12, 2015

Estate Tax Consequences of Retirement Relocation

Moving BlogPicMoving after retirement has become increasingly popular over the years but it may have unintended consequences for estate planning. Sixteen states have estate taxes that vary in exceptions allowed and rates imposed after death. A state such as New Jersey has an exception threshold under $700,000 and maximum tax rates of %14 which could dramatically alter the value of an expected bequest if a retiree had moved from a tax free state. Whenever your client talks about relocation make sure they understand the potential consequences moving may have and advise them how to minimize the potential impact.

See Kyle Krull, Retirement Relocation? Watch Out for Death Taxes!, Wealth Management, May 8, 2015.

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

May 12, 2015 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Monday, May 11, 2015

The Effect a Faith Based Arbitration Clause Has On Taxes

Jewish courtPlacing faith-based arbitration clauses into trusts has recently been growing in popularity.  When a Florida couple claimed the gift tax exclusion for money that they placed into a faith-based irrevocable “Crummey” trust, the IRS challenged them.   The IRS argued that because the trust required beneficiaries to arbitrate disputes before a “beth din” (a rabbinical court in Judaism), the beneficiaries did not possess the “present interest” necessary for the gift-tax exclusion.  The Tax Court overruled the IRS, ruling that including a faith based arbitration clause does not disqualify a settlor from claiming the gift tax exclusion.  Resolving disputes through faith based arbitration is becoming increasingly popular in Christian, Muslim, Jewish and other religious communities.  

See Juan C. Antunez, Will a Faith-Based Arbitration Clause Disqualify Your Trust For Tax Purposes?, Probate & Trust Litigation Blog, April 20, 2015. 

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

May 11, 2015 in Estate Planning - Generally, Gift Tax, Religion, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, May 9, 2015

Repeal of State Estate and Gift Tax Legislative Priority

Cutting TaxesOnly 15 states currently have estate and gift taxes but that number will likely shrink as legislatures make it a priority to repeal or curtail the assessments. Critics of the taxes claim that it slows economic growth and many states agree as Indiana and Tennessee have accelerated repeals while Maryland and New York are increasing exemptions. Taxes will be a major factor in all estate planning so these changes should be carefully monitored going forward.

See Scott Drenkard & Richard Borean, Economic Growth Slowest in Estate Tax StatesNational Center for Policy Analysis, May 8, 2015.

 

Scott Drenkard and Richard Borean

 

Scott Drenkard and Richard Borean

 

Scott Drenkard and Richard Borean

 

Scott Drenkard and Richard Borean

 

May 9, 2015 in Estate Planning - Generally, Estate Tax, Gift Tax, Wills | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 5, 2015

Gift Tax 101

Gift 2Each year, you are allowed to give another person up to the annual gift tax exclusion ($14,000) without reporting the transfer to the IRS or paying taxes on the sum.  For any gifts above this limit, you must report the excess to the IRS through Form 709.  The sum will be subtracted from you total lifetime gift and estate tax exclusion.  As of now, you can transfer up to $5.43 million in assets federal-tax-free over your lifetime. 

There are ways to get around the limit and avoid any risk of estate taxes.  For example, if you are married, you and your spouse can give up to $28,000 per year.  If you are paying tuition or medical expenses for another person you are also able to get around the gift-tax rule since both of these types of gifts are non-taxable.

See Kerri Anne Renzulli, When Does a Gift Trigger a Tax Bill?, Time Money, May 5, 2015.

May 5, 2015 in Estate Administration, Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 22, 2015

Gift Tax Implications of Arbitration and In Terrorem Trusts Provisions

GavelIn a recent Tax Court case, a married couple claimed a gift tax exclusion for up to the annual exclusion amount for gifts they each made to a Crummey trust. The IRS disallowed the exclusions because the beneficiaries lacked a "present interest in the property." The IRS based their position on the beneficiaries' inability to legally enforce the rights due to an arbitration and in terrorem provisions.

In Mikel v. Commissioner, the Tax Court granted partial summary judgment to the Mikels, finding that the trust transfers were a present interest. The court reasoned that the beneficiaries could still enforce their rights through arbitration, and the in terrorem provision did not prevent enforcement of withdrawal rights but only prevented challenges to a trust distribution.

See Steve R. Akers, Impact of Arbitration or “In Terrorem” Provisions in Crummey Trusts—Mikel v. Commissioner, T.C. Memo. 2015-64. (April 6, 2015), Bessemer Trust, Apr. 2015.

April 22, 2015 in Estate Planning - Generally, Gift Tax, New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, April 20, 2015

Gift Tax Bill Passes House

LawLast week H.R. 1104, the bill entitled Fair Treatment for All Gifts Act, passed in the U.S. House of Representatives. If enacted, H.R. 1104 will exempt contributions to social welfare organizations, labor unions, and trade associations from the federal gift tax.

See Kevin J. Shortill, Gift Tax Certainty at Last? re: H.R. 1104, National Law Review, Apr. 17, 2015.

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

April 20, 2015 in Gift Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

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)