Wills, Trusts & Estates Prof Blog

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

Thursday, September 29, 2016

New Rev. Proc. Allows QTIP Election with Portability Election

Qtip elecitonThe 2010 amendment of IRC § 2010(c) allowed an estate executor to make a portability election; therefore, influencing the decision to make a qualified terminable interest property (QTIP) election. A QTIP election reduces the decedent’s taxable estate, further maximizing the amount of unused exclusion available for the decedent’s surviving spouse. Accordingly, the executor electing portability of the decedent’s unused applicable exclusion amount may wish to make a QTIP election, regardless of whether the QTIP election reduces the estate tax liability to zero.  

Rev. Proc. 2001-38, 2001-24 I.R.B. 1335 details a procedure for which the IRS will disregard and nullify federal estate, gift, and generation-skipping transfer tax for purposes of a QTIP election made when the election was unnecessary to reduce the estate tax liability to zero. With the use of portability elections, the ability to void and nullify QTIP elections in Rev. Proc. 2001-38 may bring questions over the ability of the decedent’s estate to make an unnecessary QTIP election for the sake of maximizing the available unused exclusion amount. Subsequently, this revenue procedure modifies and supersedes Rev. Proc. 2001-38. It confirms the IRS procedures for disregarding a QTIP election, but excludes those estates that made a portability election in accordance with § 2010(c). 

See 26 CFR 601.201: Rulings and Determination Letters; Rev. Proc. 2016-49.


September 29, 2016 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Tuesday, September 6, 2016

Conferring a Power of Appointment

POAA power of appointment (POA) is a power that a trust beneficiary has to direct to or for whom trust property will pass, representing a non-fiduciary power. When conferring a POA, it is important to use clear language that specifies when the power is exercisable, to or for whom it is exercisable, what property may be disposed of, and what procedure must be followed. There are also several important estate and gift tax consequences that follow based on the type of POA identified. Ultimately, a POA is the most direct and efficient way for a property owner to confer power on another to determine the destination of property.

See Charles A. Redd, Tips from the Pros: Don’t Overlook the Power of Powers, Wealth Management, August 25, 2016.

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

September 6, 2016 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Sunday, September 4, 2016

Inheritance Now or Later?

Inheritance nowYou should consider the benefits of passing on an inheritance while living versus in your will. During life, our families often experience times where extra money would be beneficial to fulfill certain needs. This creates somewhat of a demand for an inheritance to be passed on now instead of waiting to pass your legacy in a will. Studies show that individuals over the age of 50 prefer to give money during life, so they can enjoy helping their children reach their goals.

Ultimately, however, you must determine if transferring wealth while alive is the right decision for you. First, you must consider which family members are in need of the money now and which can wait. Also, you must understand the consequences of a gift’s burdens, and whether you are over-giving, so that later on you are not the one that needs help. Finally, with the timing of your generosity, it is important to understand any tax consequences.

See Why Make Your Heirs Wait?, Merrill Lynch.

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

September 4, 2016 in Estate Planning - Generally, Gift Tax, Trusts, Wills | Permalink | Comments (0)

Friday, September 2, 2016

The Benefits of a Charitable Lead Trust

CltA charitable lead trust (CLT) pays annuities to one or more charities of your choice for a specified term or for life. At the end of the term, the remaining assets will pass to any non-charitable beneficiaries. During the term, if the trust generates higher total returns, any excess growth will pass to your non-charitable beneficiaries free of gift tax. This benefit is determined in part by the interest rates at the time of trust creation. Low interest rates will produce a greater tax deduction and reduction in the gift tax. On the other hand, charitable deduction amounts are determined based on the size of charitable payments, the length of charitable term, and the IRS prescribed rates for calculating the present value of charitable payments. A CLT represents an opportunity for significant estate and gift tax savings.

See Albert W. Gortz, George D. Karibjanian, David Pratt, Mitchell M. Gaswirth, & Andrew M. Katzenstein, Charitable Lead Trusts Can Save Transfer Taxes, National Law Review, July 31, 2016.

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

September 2, 2016 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Tuesday, August 23, 2016

Proposed Regulations Will Keep Wealthy Americans from Lowering Estate Taxes

IRSThe IRS will implement new rules likely limiting techniques used by rich individuals to lower their estate and gift taxes. These new regulations apply to valuation discounts, which allow people with assets greater than the current $5.45 million exemption to lower the value of their assets subject to gift and estate taxes. Asset owners of this type typically put their assets into a holding company that is not traded, giving shares of the company to family or charity. Subsequently, the assets’ value drops due to dispersed control of the company. The proposed regulations will allow the IRS to ignore these discounts.

See Laura Saunders, The Controversial Way Wealthy Americans Are Lowering Their Estate Taxes, Wall Street Journal, August 19, 2016.

Special thanks to Naomi Cahn (Harold H. Greene Professor of Law, George Washington University School of Law) for bringing this article to my attention.

August 23, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Wednesday, August 10, 2016

Understanding the Rules for Gift Taxes

Gift taxesIf you want to give monetary gifts to your family, there are ways to minimize gift taxes and save money. More specifically, certain wealth transfers are excluded from the gift tax and are fully tax-free lifetime wealth transfers. The yearly gift tax exclusion is $14,000 for individuals and $28,000 for couples; if you or an individual spouse exceeds these limits, you must file a Form 709 gift tax return. For the lifetime exemption, the limit is $5.45 million for an individual and $10.9 million for a couple—as long as your lifetime gifts do not exceed these amounts, they cannot be taxed. When giving to a 529 Tuition Plan, you can give up to $70,000 in one year, using the exclusion value of five years, but you must wait four years before giving that individual another gift. Also, you may give an unlimited amount of tuition to the institution as opposed to giving it straight to the individual attending school. 

See Kansas & Missouri Estate Planning Blog, What Should My Clients Know About Gift Taxes?, Wealth Management, August 4, 2016.

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

August 10, 2016 in Estate Planning - Generally, Gift Tax | Permalink | Comments (1)

Friday, August 5, 2016

Proposed Regulations Elimination of Valuation Discounts

Family business transferThe IRS recently published proposed regulations, detailing its desire to curtail the use of valuation discounts used to transfer interests in family-controlled entities. These valuation discounts typically have allowed family members to receive the business at a reduced gift and estate tax cost. The new valuation rules will apply regardless of whether the business is active. A public hearing is scheduled for December 1, 2016, and shortly after, the rules will be published in final form. The valuation rules will apply to transfers occurring after the final form is published.

See Trusts and Estates Group Client Alert: Proposed Regulations Aim to Eliminate Many Valuation Discounts, Milbank, August 4, 2016.

August 5, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Wednesday, August 3, 2016

Proposed Regulations for the Valuation of Interests

The IRS recently released a notice of proposed rulemaking and notice of public hearing entitled, Estate, Gift, and Generation-Skipping Transfer Taxes; Restrictions on Liquidation of an Interest. Provided below is a summary on the proposed regulations:

This document contains proposed regulations concerning the valuation of interests in corporations and partnerships for estate, gift, and generation-skipping transfer (GST) tax purposes. Specifically, these proposed regulations concern the treatment of certain lapsing rights and restrictions on liquidation in determining the value of the transferred interests. These proposed regulations affect certain transferors of interests in corporations and partnerships and are necessary to prevent the undervaluation of such transferred interests.

Special thanks to Robert Wolf (Attorney, Tener, Van Kirk, Wolf & Moore, P.C.) for bringing this to my attention.  

Download 2016-18370Proposed2704Regs

August 3, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Thursday, July 7, 2016

Estate Planning for Retirees

RetireesIn the United States, the life expectancy continues to rise, meaning that Americans need more financial support as they age. If the aging population does not plan accordingly, they will be unable to maintain the quality of life they deserve during retirement. Estate planners need to help these retirement-age individuals address their new priorities accordingly. When planning for retirement, estate plans should pay attention to gift provisions, so that they do not take advantage of the retirees. Another examination is state income tax, which will effect where retirees establish residency. Estate planners should also consider a retirement trust for their clients, allowing children to disclaim all or some of the inherited retirement account benefits for their own kids.

See John M. Goralka, Estate Planning for an Aging Population, Wealth Management, July 5, 2016.

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

July 7, 2016 in Elder Law, Estate Planning - Generally, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Wednesday, June 15, 2016

Elective Sharing of Transfer Tax Exemption Between Spouses

Estate and gift taxKerry A. Ryan recently published an Article entitled, Marital Sharing of Transfer Tax Exemptions, 57 Boston College L. Rev. (2016). Provided below is an abstract of the Article:

This Article analyzes portability and its antecedents in order to distill a positive account of marital sharing of transfer tax exemption amounts. Prior to 2010, the estate and gift tax exemption equivalent was a nontransferable, separate tax attribute of each spouse. A spouse could only access his or her spouse’s effective exemption by shifting property into the other spouse’s tax base. With the enactment of portability, Congress decoupled tax-free availability of a spouse’s unified credit from the necessity of a prior intra-spousal transfer. All that is required is an election by the decedent spouse, via the executor, to share the decedent’s unused exemption equivalent with the surviving spouse. This Article argues that a logical extension of this progression in the law, presaged by several early proposals by the American Law Institute and the U.S. Treasury, would be a regime that authorized elective sharing of estate and gift tax exemption amounts between spouses, in any proportion, during life or at death.

June 15, 2016 in Articles, Estate Tax, Gift Tax | Permalink | Comments (0)