Wills, Trusts & Estates Prof Blog

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

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Friday, December 19, 2014

Taking Advantage of Current Estate Tax Breaks

Gift

December is a busy time for almost anyone.  Amidst the hustle and bustle, do not forget to take advantage of the current tax breaks offered under estate and gift planning laws.  If you miss these opportunities, they may not present themselves again.

One of the last tax breaks in the estate and gift tax system is your right to make gifts of $14,000 to any number of donees free of transfer tax this year.  In making these gifts, you are able to reduce your estate and avoid death taxes. 

If you make gifts in excess of the annual exclusion amounts, you will use some of your lifetime unified estate and gift tax exemption.  Yet, the sooner you use it, the more income and appreciation that will pass tax-free to your family in the future.  This is particularly true as the stock market continues to soar. 

If you are not comfortable in making gifts of $14,000 or of your $5.34 million exemption, you can put the gifts into a Crummey Trust instead.  A Crummey Trust (Gift Trust) can be designed so that you can take advantage of your annual exclusion gifts and still leave your family with access and control.  If your family needs access to the trust funds, the trust income and assets are available.  But if your family does not need them, they remain sheltered and grow. 

See John S. Lueken, How To Get The Most Out Of Your Year-End Gift And Estate Tax Planning, Bingham Greenebaum Doll, Dec. 15, 2014. 

December 19, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 17, 2014

Possible Extension for Charitable IRA Rollovers

Charity 3

Congress could retroactively extend a tax break on charitable donations from individual retirement accounts that expired at the end of last year.  The provision would allow account owners and beneficiaries over the age of 70 ½ to donate up to $100,000 in IRA assets without reporting the withdrawal as taxable income, effectively getting a deduction for the gift.  For many who plan to give to charity, “this gets you the biggest bang for your buck.”

The charitable IRA provision may also aid taxpayers in avoiding or reducing taxes on Social Security benefits and avoid higher Medicare Parts B and D premiums, which kick in when adjusted gross income exceeds $85,000 for individuals and $170,000 for couples. 

Experts expect Congress to revive the provision, as it has several times in recent years.  “There is a history of retroactive extensions.  My bet is that it will probably pass,” says Ed Slott, an IRA expert. 

After enacting the charitable IRA rollover tax break for 2006 and 2007, Congress has extended it three times, each for two years.  Experts expect the same pattern will hold this year, though Congress seemed poised to pass only a one-year extension.  However, if Congress does not resurrect the tax break, IRA owners who itemize will still get a tax break in the form of a deduction.  IRA owners must take their RMDs by year’s end or face a 50 percent tax on the amount they should have withdrawn. 

See Anne Tergesen, Charitable IRA Rollovers Could Get Reprieve, The Wall Street Journal, Dec. 13, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

December 17, 2014 in Estate Planning - Generally, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Monday, December 15, 2014

Date-Of-Delivery Rules

Delivery

If you plan to make charitable donations before the end of the year, make sure you understand how “date-of-delivery” rules work. 

Over the next two weeks, donors will be able to claim gifts as deductions for their tax returns for 2014.  In order to qualify for these deductions, donors must comply with the IRS rules involving when the gift was contributed to the charity.  These rules vary, depending on the kind of property that is gifted and how it is transmitted. 

A gift’s date of delivery establishes the tax year in which the gift can be deducted; the value of the donation for assets that might fluctuate in value; and whether a gift is considered to be long-term or short-term property.  “Depending on the fund, it can take several weeks to effect the transfer.  For that reason, mutual-fund gifts should be planned well in advance.”

If you are making a gift by check, the date you mail the check is normally considered the date of delivery.  For instance, a check mailed on December 31 will qualify for a deduction on a person’s 2014 tax return, even if the charity does not receive the check until January.  Be aware, though, that this rule applies to U.S. postal mail and not to private couriers. 

Since date-of-delivery rules could have a big effect on your tax returns for 2014, fi you plan to give to charity, give quickly.

See Glenn Ruffenach, Year-End Charitable Giving: Get the Tax Timing Right, Market Watch, Dec. 15, 2014. 

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

December 15, 2014 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Friday, December 12, 2014

Transfer Wealth With A CLAT

CLAT

Boston Consulting Group senior partner, Ron L. Nicol, earned an executive M.B.A. at Duke University and is currently the chairman of Fuqua’s Board of Visitors.  After being a nuclear submarine officer in the Navy for seven years, he approaches all financial decisions with thoroughness and precision.  Thus, he is to be believed when he says this is an excellent time to execute a charitable lead annuity trust (CLAT). 

“It’s such a tax-efficient way to do charitable giving.  It’s almost like it’s to good a deal to turn down,” says Nicol.  He maintains that CLATs are underutilized because “these things are being described to people by attorneys instead of businesspeople.” 

A CLAT pays a set amount to charity for a set number of years, with what is left at the end going to your children or other individuals.  At the time you establish your CLAT, the IRS values your ultimate gift to your children by projecting the CLAT will earn a fixed rate of return based on interest rates at that time.  This charitable midterm rate is now only 2 percent, compared with 8 percent in 2000.  Therefore, if you set up a CLAT now and the trust earns more than 2 percent, you are transferring wealth to heirs at a discount or even tax-free. 

To utilize a CLAT, you need both charitable intent and a net worth that will exceed the lifetime estate and gift-tax exemption of $5.43 million per person in 2015.  Nicol and his wife have set up their CLAT with $1 million in appreciated stock in 2012, when the charitable midterm rate was 1.2 percent.  It will pay $40,000 a year to Duke for 30 years, and what is left at the end will go to their daughters.  If the trust earns 1.2 percent, nothing will be left for their kids.  However, if it earns 7 percent, there will be $3.7 million for their daughters.  “I look at it as, ‘Hey, the government is giving you the taxpayer and the charitable organization a tremendous opportunity.’”

See Ashlea Ebeling, Precision Wealth Transfer With A CLAT, Forbes, Dec. 10, 2014.

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

December 12, 2014 in Estate Administration, Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Charitable Planning With Insurance Policies

BagPrior to the increase in the gift and estate tax exemptions, the focus on reducing tax consequences was higher than in the present financial climate. The increased exclusions have reduced the drive for tax focused estate planning for the many estates that now fall below the exclusion. While this change has reduced the incentives for charitable planning to reduce estate tax, it has created a new trend, which is to donate life insurance policies to charity. This trend was created because the same tax incentives that fueled large charitable giving contributions also fueled the desire to create life insurance policies to cover the estate tax cost. This type of charitable planning can create beneficial results, but experts also caution that some insurance policy based donations can create independent tax consequences and should be considered carefully.

See Warren S. Hersch, Charitable Planning in 2015: Weighing the Pros and Cons, Life Health Pro, Dec. 11, 2014.

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

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

Thursday, December 11, 2014

Uncertainty Among Charitable IRA Rollovers

Charity 2

As of now, it remains uncertain whether Congress will extend the IRA charitable rollover tax break for 2014.  For those 70 ½ and older with an Individual Retirement Account, the IRA charitable rollover is an attractive tax-wise giving strategy.  With it, you are able to direct the custodian of your pretax IRA to transfer up to $100,000 per year to a public charity without having to count that distribution in your income.  In return, you will relinquish the charitable income tax deduction. 

While Congress hashes out a funding bill to keep the government open and determine the fate of IRA charitable rollover provisions, a one-year extension is good through December 31, 2014 and a two-year extension is good through December 31, 2015. 

H.R. 5806 would make all three charitable provisions permanent.  “By making these bipartisan charitable tax incentives permanent, Congress has the opportunity to multiply the millions of individual acts of generosity happening across the country and make those contributions permanent.” 

Meanwhile, donors can “plan in the fog,” where non-itemizers can make charitable gifts directly from their IRAs to charity.  If the law is extended retroactively, the non-itemizers will not be taxed on the distributions up to the $100,000 limit.  If the law is not extended retroactively, they will be taxed on the distribution as usual.  “Non-itemizers have nothing to lose and the equivalent of a charitable deduction to gain if the law is extended.”

See Ashlea Ebeling, Dreaming Of A Charitable IRA Rollover, Forbes, Dec. 10, 2014. 

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

Friday, December 5, 2014

Tax Reminders Moving Into 2015

Tax CutHere are some tips and reminders for estate, gift, and GST tax exemptions for the new year:

  • The federal estate tax exemption for estate, GST, and gift tax will increase to $5,430,000 in 2015.
  • The annual gift tax exclusion will not increase in 2015, but will remain at $14,000.
  • Portability allows a surviving spouse to increase their tax exemption for both estate and gift tax by using the deceased spouse's unused exemption.
  • Portability is not allowed for GST tax exemption or most state estate tax.
  • There is still time to take advantage of any unused 2014 annual gift tax exclusion, as long as the gifts are completed by December 31.

See Albert W. Gortz, et al., 2015 Estate, Gift and GST Tax Update: What This Means for Your Current Will, Revocable Trust and Estate Plan, The National Law Review, Dec. 3, 2014.

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

December 5, 2014 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, December 4, 2014

IRS Electronic Reading Room

BooksA quick reference list of tax guidance and information organized by categories is available via the IRS Electronic Reading Room. Resources available include:

  • Final, Temporary, and Proposed Regulations
  • Administrative Guidance Material
  • Private Letter Rulings
  • How to request a private letter ruling
  • And much more

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this resource to my attention.

December 4, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Resource Links | Permalink | Comments (0) | TrackBack (0)

Monday, December 1, 2014

Tips for Charitable Givers

Charity 2

As equity market growth has given individuals larger unrealized gains and spurred an outpouring of donations, charitable giving jumped 28 percent last year among wealthy households.  Below are tips for working with clients on their philanthropic goals:

  • Start with the tax return.  The easiest way to tell if someone is charitably inclined is to review their tax return.
  • Size doesn’t matter. “We have people who give away $1 million a year and some who give away $5,000.”  Even the smallest amounts can have a direct impact.
  • Don’t wait for the estate plan. People may enjoy watching the good their money can do right away, instead of waiting until they pass to give the money away.
  • Focus on appreciated assets. Giving appreciated assets such as stock or property is preferable to giving money directly because it takes taxable assets out of an estate, which gives people a tax break.
  • Consider charitable lead trusts. This enables the charity to receive income off the trust for several years.
  • Consider family foundations. Use these only if you plan to fund one with at least $5 million because the expense of running a foundation can be costly.

See Ann Marsh, 17 Charitable Tips for the Wealthiest Clients, Financial Planning, Dec. 1, 2014.

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

December 1, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, November 29, 2014

Looking Back at Estate Planning in 2014

Look2014 was mostly a year of stability for estate planning, but did include some significant developments. The current exclusion amounts for estate, gift, and generation-skipping transfer tax is at a historical high at $5.34 million currently and expected to be $5.43 million for 2015. Portability for gift and estate tax exclusions by a surviving spouse has been a focus of estate planning considerations this year, as well as heightened attention to income tax as a result of increased income tax rates. One significant development in 2014 that garnered much attention was the US Supreme Court decision in Clark v. Remeker, which held inherited IRAs do not fall under bankruptcy protection.

See David M. Allen, Mal L. Barasch, Victor H. Bezman & Diane B. Burks, 2014 Year-End Estate Planning Advisory, The National Law Review, Nov. 28, 2014.

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

November 29, 2014 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)