Monday, February 20, 2017
As we all know, President Trump has promised to repeal the estate tax, claiming that the tax is just plain wrong. It is easy to say that our country should repeal the estate tax, considering so few families actually pay the tax, but other tax areas will have to give in order to make up for the loss. The estate tax has two siblings—the gift tax and the generation-skipping tax. As of now, it is unclear how President Trump will balance the three taxes. His campaign website sketched out a plan that involved replacing the estate tax with a tax on all capital gains and no mention of the other two taxes. Ultimately, with the estate tax only generating 0.005% of annual tax collections, the tax incites more of a political debate than a federal revenue one.
See Brian J. O’Connor, Once Again, the Estate Tax May Die, N.Y. Times, February 18, 2017.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.
Friday, February 17, 2017
Foreword – The Supreme Court’s Estate Planning Jurisprudence by Bridget J. Crawford
The Four Horsemen and Estate Taxation by Jasper L. Cummings, Jr.
The U.S. Supreme Court and the Law of Trusts and Estates: A Law Reformer’s Perspective by Thomas P. Gallanis
Irwin v. Gavit: Income Is (Sometimes) in the Eye of the Beholder by William P. LaPiana
Taft v. Bowers: The Foundation for Non-Recognition Provisions in the Income Tax by James R. Repetti
Helvering v. Clifford: The Supreme Court Spoils the Broth by Mark L. Ascher
Helvering v. Horst: Gifts of Income from Property by Jerome M. Hesch & David J. Herzig
Helvering v. Safe Deposit & Trust Co.: Underestimating the Power of a Power of Appointment by Samuel A. Donaldson
Oklahoma Tax Commission v. United States: Death Taxes on Restricted Indian Personalty by Thomas E. Simmons
Smith v. Shaughnessy: Slippery Remainder Interests and the Intersection of Gift and Estate Taxes by Ann-Marie Rhodes & Erica E. Lord
Robinette v. Helvering: Valuation of Gifts to Split-Interest Trusts by Stephanie E. Heilborn & Cindy Zhou
Merril v. Fahs: Release of Marital Rights Is Insufficient Consideration for Transfer Tax Purposes by Kevin E. Packman
Fidelity-Philadelphia Trust Co. v. Smith: Form over Substance? by Deborah V. Dunn & Domingo P. Such, III
Commissioner v. Estate of Noel: The Double Life of Life Insurance by John McGown, Jr. & Jason Melville
Commissioner v. Estate of Bosch: 50 Years of Relevance by Jonathan G. Blattmachr & Madeline J. Rivlin
United States v. Estate of Grace: Seeking a More Objective Test for the Application of the Reciprocal Trust Doctrine by Dennis I. Belcher & Kristen Frances Hager
United States v. Byrum: Too Good to Be True? by Ronni G. Davidowitz & Jonathan C. Byer
Dickman v. Commissioner: Loans as Property Transfers by Carlyn S. McCaffrey & John C. McCaffrey
Commissioner v. Estate of Hubert: How the I.R.S. Stole Hubert’s Blessing by Kristen E. Caverly
United States v. Windsor: The Marital Deduction that Changed Marriage by Lee-ford Tritt
Tuesday, February 7, 2017
In United States v. Estate of Lillian Beckenfeld, the Tax Court sided with the IRS, upholding that a collection action against an estate was valid. In 2013, Beckenfeld’s estate filed a late gift tax return for the year 2007. Accordingly, the IRS assessed additions to the tax, which added up to $951,411.34. Upon sending in the check to pay additional payments and interest, Beckenfeld’s estate included instructions that the IRS followed but ultimately left the gift tax liability unpaid. After an appeal, the IRS issued a notice, sustaining its intent to levy.
See Dawn S. Markowitz, Collection Action for Late-Filed Gift Tax Return Upheld, Wealth Management, February 6, 2017.
Because most Americans do not have to worry about the estate tax, they should begin to focus on who should receive their wealth, how much they should receive, and the reasons why. Clients are often worried about letting their children inherit too much to the point it could keep them from developing their own lives. In addition to this concern, Americans are also strongly supporting charitable organizations and experiencing the joys of gift giving; as a result, more clients are providing for charitable contributions in their estate plans. Charitable giving, however, reduces taxes, which means leaving more to their heirs. So, where does the balance lie? “Charitable inheritance” assesses the inheritance plan and sets up a donor-advisor fund for clients to set aside inheritance assets that will allow heirs to continue their parents’ legacies and build their own.
See Charlie Jordan, Charitable Inheritance Dilemmas, Financial Advisor, February 1, 2017.
Friday, January 27, 2017
Russell James III recently published a book entitled, Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning (2017). Provided below is a summary of the book:
This book provides an introductory overview of the wide range of charitable gift planning topics with implications for income, capital gain, gift, estate and generation skipping transfer taxation, including elements of a gift, documentation requirements, valuation rules, income limitations, bargain sales, charitable gift annuities, charitable remainder trusts, charitable lead trusts, remainder interest deeds with retained life estate in homes and farms, life insurance, gifts of retirement assets, private foundations, and donor advised funds.
Monday, January 23, 2017
Elizabeth Carrott Minnigh, Jerome M. Hesch & Richard A. Oshins recently published an Article entitled, Reality of Sale: The Supreme Court Does Not Believe in the 10% Seeding Gift, So Why Would You?, 42 Tax Mgmt. Est. Gifts & Tr. J. 10 (2017). Provided below is an abstract of the Article: (subscriber login information required for link)
An installment note sale to a grantor trust is a popular and powerful wealth-shifting strategy. The sale is typically accomplished in three steps. First, the owner creates an intentionally defective grantor trust (IDGT). Second, the grantor funds that trust with ‘‘seed’’ money. Third, typically after a reasonable waiting period, to avoid any potential application of the step transaction doctrine, the grantor sells assets to the trust for a note. Since the grantor sold an asset to a grantor trust (i.e., the grantor’s alter ego for income tax purposes), there is no sale for income tax purposes. The expectation is that the deferred payment obligation will be satisfied out of the future cash flow from the acquired asset, and that any excess cash and appreciation associated therewith will inure to the benefit of the purchasing trust. The note typically bears interest at the Applicable Federal Rate (AFR), and thereby avoids treatment as a gift loan under §7872(f)(3). The grantor-seller also takes a secured interest in the transferred property. Pursuant to Rev. Rul. 85-13, the sale will be income tax-free because for income tax purposes the seller and the purchaser are the same person. Rarely does an intra-family loan contain commercial loan terms, but as long as reasonable formalities are observed, the transaction should be treated as a sale, not a gift, for estate and gift tax purposes.
This Article will examine the formalities necessary to ensure the sale will be respected for transfer tax purposes. First, we will look at the requirements to avoid the potential application of §2036 or §2702. Second, we will review the holdings in several income tax cases, particularly four U.S. Supreme Court cases, outlining the framework for determining when a sale should be respected. Finally, this Article will propose a ‘‘Reality of Sale’’ framework for analyzing sales to IDGTs for estate tax purposes based on this long history of income tax cases on the same issue, which the authors contend should replace reliance on the 10% seed money rule of thumb approach commonly used. Our objective is to provide guidance with respect to how the courts evaluate whether to respect or disregard loans between related parties.
Thursday, January 19, 2017
Jonathan G. Blattmachr & Martin M. Shenkman recently published an Article entitled, Planning in a Time of Uncertainty: Part I—Why Hitting the Pause Button May Not Be the Optimal Approach, Tr. & Est. 106 (Jan. 2017). Provided below is an abstract of the Article:
The election of Donald J. Trump as our 45th President was largely unexpected. While it’s difficult to forecast the specifics of what that will mean during his term, and, perhaps, his second term, predictions can be useful to evaluate current planning. President-elect Trump has proposed wide-ranging changes to the nation’s tax system that will affect virtually all Americans and their advisors. He appears to have made tax legislation a priority for his administration. He’s suggested substantial reductions in corporate and individual tax rates and the simplification of the tax system generally through elimination of many deductions and other complexities. Estate planners, in particular, are already facing a dramatic impact on their practices, as many clients have hit the pause button on planning in anticipation of a possible repeal of the estate tax. This may not be the optimal approach for clients, and this two-part article will explore why.
Flávia Allegro Gerola recently published an Article entitled, Gift Tax Consequences Between Spouses of Different Citizenships: A Comparative Analysis Between American and Brazilian Laws, 31 Probate & Property 54 (Jan/Feb 2017). Provided below is an abstract of the Article:
As globalization and immigration increase, the tax implications of marriages between citizens of different countries must be taken into consideration by practitioners designing an estate plan for such couples. In particular, gifts between spouses may have tax consequences in both countries.
The United States has estate and gift tax treaties with 18 countries. These treaties minimize and avoid double taxation when two countries have the right to tax the transfers of a donor or decedent under the applicable domestic law. The treaties provide primary and secondary taxing rights, stius rules, and special rules dealing with credits, deductions, and exemptions. There is no tax treaty between Brazil and the United States, so the applicable law of both countries must be considered for gifts between American and Brazilian spouses. This article provides an overview of the most common gifting strategies and gift tax consequences for gifts made between American and Brazilian spouses.
Monday, January 16, 2017
Sharon L. Klein recently published an Article entitled, The State of the States: 2016—An Update of Key Planning Developments, Tr. & Est. 82 (Jan. 2017). Provided below is an abstract of the Article:
To be more competitive, some jurisdictions with separate estate taxes have been increasing the amount that’s exempt from state estate taxes or even phasing out their estate or inheritance taxes. President-elect Donald J. Trump campaigned on eliminating the federal estate tax. A repeal of the federal estate tax would have a significant trickle-down effect at the state level on a number of issues. In particular, some states peg their estate tax exemption amounts to the federal exemption amount and might need to take specific action to decouple. What happens at the federal level remains to be seen. In the meantime, here’s the latest state-level activity.
Friday, January 13, 2017
A new report suggests that the outlook for philanthropy is positive for the next two years. Specifically, United States charitable giving will increase 3.6% this year and 3.8% next year. In contrast, over the past ten years, the average total increase was only 0.5%. Donations are expected to increase due to improvements in the overall economy and the stock market as well as increases in gross domestic product and household incomes. Philanthropic giving by foundations will comprise the greatest percentage of growth followed by donations from estates. Also, giving to health causes is predicted to grow the most at 8.5% in 2017. As a result, charitable organizations should seek to communicate their needs with potential donors.
See Karen Demasters, Donors Predicted to Give More in 2017, 2018, Financial Advisor, January 13, 2017.