Wills, Trusts & Estates Prof Blog

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

Monday, February 19, 2018

Fixing Outdated Irrevocable Trusts

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-19/d784c1f6-8c9a-45e6-9b6e-c84581ca41eb.pngEstate planners now meeting with clients to review their outdated estate plans commonly come across irrevocable trusts set up by those clients in the 1980s, 90s, or early 2000s. Many of these trusts were established at a time when the estate and gift tax exemption thresholds were much lower and affected a larger group of taxpayers. The point of creating these trusts was to lower the size of a client’s estate in order to avoid as much estate and gift tax as possible. Under the current tax law, these trusts are no longer as necessary and may even be detrimental to an estate plan. In Wisconsin, changes to the Wisconsin Trust Code provide more options for planners and clients to modify or terminate these irrevocable trusts.

See Jacqueline L. Messer, Fixing Outdated Irrevocable Trusts, Milwaukee Business Journal, February 5, 2018.

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

February 19, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, February 5, 2018

Clawback Under the New Tax Law: Part 2

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-05/2b986efa-a608-4de1-ad41-7b86165fc4a8.pngThe increased estate and gift tax exemption thresholds are set to expire in 2026. If this occurs, there is some potential for a lifetime gift “clawback” depending on how the IRS handles the situation. IRC Section 2001(g) indicates that the Secretary is responsible for issuing regulations to address the potential disparity a decedent may face between a lower estate tax exemption threshold in effect at his death and a higher lifetime gift exemption threshold, under which he gave gifts in excess of the estate tax exemption limits, in effect during his life. The IRS can handle this situation through a few different methods. How they choose to tackle the issue may create a considerable incentive for taxpayers to give gifts in excess of $5.5 million now, prior to the expiration of the current limits.

See James G. Blase, Clawback Under the New Tax Law: Part 2, Wealth Management.com, January 26, 2018.

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

February 5, 2018 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Friday, February 2, 2018

Managing Tax Basis in Estate Planning

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-02/6285f04a-96e1-480a-8331-aeff3c98b673.pngThe Northern Trust Company’s Paul S. Lee gave one of the more memorable presentations at the 2018 Heckerling Conference. His discussion focused primarily on the need for planners to manage tax basis as part of the overall estate planning process. Lee equated the applicable exclusion amount to being “free basis,” as those assets covered by the exclusion receive a step-up in basis while remaining free of the federal estate tax. Because of this, he recommends reserving the use of the applicable exclusion only to those instances where there is some chance of the exclusion being lost. A prime example of such an instance would be immediately prior to the expiration of the current exemption thresholds.

See Jordan Smith, Managing Tax Basis in Estate Planning, Wealth Management.com, January 25, 2018.

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

February 2, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Scholarship, Teaching | Permalink | Comments (0)

Thursday, February 1, 2018

The Tax Cuts and Jobs Act: An Overview and Four 2018 Planning Suggestions

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-02-01/b134c2f7-9770-4083-a83b-092c6b371086.pngFor the first time in over three decades, the countdown to the New Year coincided with a countdown to massive changes in the Tax Code. The Tax Cuts and Jobs Acts affects tax payers in a multitude of different ways. To get a handle on these changes in 2018, taxpayers and business owners should consult with their attorneys or financial advisors to see how the new laws might impact their estate plan. Individual taxpayers may also consider additional gifting. Since the changes to the estate and gift tax exemption thresholds were written to expire, the present may be the best time to transfer assets to designated beneficiaries before the law changes again. It is also important to consider basis planning for assets that have considerably appreciated. The large increase to the estate and gift tax exemptions along with a beneficiary’s continued ability to retain a stepped-up basis incentivizes the harboring of assets within an estate, as opposed to the traditional practice of moving assets out of donor’s estate to avoid estate and gift tax. Finally, it is important for taxpayers to ensure their estate plans are flexible in order to accommodate future uncertainty.

See Caitlin E. Abram, The Tax Cuts and Jobs Act: An Overview and Four 2018 Planning Suggestions, Faegre Baker Daniels, January 23, 2018.

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

February 1, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Tuesday, January 30, 2018

Will High Estate Tax Exemptions Mean Less Planning?

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-01-30/80190a74-5c7d-46c6-9e39-60410594bf8d.pngIt seems like many estate planners are not overly concerned with the increase in the estate and gift tax exemption thresholds. In a survey conducted by Trusts & Estates in preparation for the Heckerling Institute on Estate Planning, almost two-thirds of the 1,000 who responded said they were either not worried or worried only a little about the potential effects of tax reform on their practice. A little under half expect modest changes while 52% are expecting little or no change at all. A possible explanation for this seemingly nonchalant attitude may be that many in the field do not expect the exemptions to last very long. 75.3% believe changes to the estate tax are impermanent and 82.6% think the same of the gift tax. There is some anticipation of growth in the tax arena though, with 45.8% expecting to see an increase in this part of their practice.

See Susan R. Lipp, Will High Estate Tax Exemptions Mean Less Planning?, Wealth Management.com, January 22, 2018.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

January 30, 2018 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Wednesday, January 10, 2018

CLE on Tax Strategies for Estate, Retirement and Financial Planning

0000000 CLEThe National Business Institute is holding a conference entitled, Tax Strategies for Estate, Retirement and Financial Planning, which will take place on Monday, January 29, 2018, at the Holiday Inn Orange County Airport Hotel Santa Ana in Santa Ana, CA. Provided below is a description of the event:

Program Description

Effective Tax Strategies for Trusts, Estates and Individuals

Expand your arsenal of tax planning tools with the latest and most effective techniques! Experienced faculty will guide you through basis enhancing strategies, asset protection mechanisms, recent tax planning trends, regulatory updates and more in this comprehensive seminar. Protect your clients from undue tax burdens from cradle to grave - register today!

  • Gain practical wealth transfer techniques to minimize both estate and income tax liabilities.
  • Choose the best tax planning options to protect remarried and divorced clients.
  • Make the best use of partnerships and LLCs and comply with the latest rules governing them.
  • Find charitable solutions to top estate planning problems.
  • Maximize your clients' retirement assets and get tools for their tax-efficient transfer to beneficiaries.
  • Clarify how rules of professional conduct are applied in tax practice.

Who Should Attend

This basic-to-intermediate level seminar is designed for:

  • Attorneys
  • Accountants and CPAs
  • Financial Planners
  • Trust Officers
  • Tax Professionals
  • Paralegals

Course Content

  1. Top Lifetime Transfer Strategies to Reduce Taxes
  2. Tax Planning With Life Insurance
  3. Valuation of Assets: How to Protect Clients From Tax Penalties
  4. Using LLCs and Partnerships (Pass-Through Entities) to Your Client's Advantage
  5. Tax Strategies in Retirement Planning
  6. Using Spousal Protections and Minimizing the Effects of Divorce
  7. Trusts: Top Designs for Tax Reduction
  8. Charitable Giving as a Tax Tool
  9. Legal Ethics in Tax Practice
  10. Cross-Border Tax Issues Every Estate Planner Needs to Know

Continuing Education Credit

Continuing Legal Education – CLE: 6.75 *

Financial Planners – Financial Planners: 8.00

International Association for Continuing Education Training – IACET: 0.70

National Association of State Boards of Accountancy – CPE for Accountants/NASBA: 8.00 *

* denotes specialty credits

January 10, 2018 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Professional Responsibility | Permalink | Comments (0)

Saturday, December 30, 2017

Tax Changes Are Coming on Monday: Here’s When It Will Affect You

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2017-12-29/ac447468-2303-44a2-9820-54399dabafc6.pngA number of changes borne of the updated tax code are slated for delivery on Monday. The bill adds exemptions and makes cuts to the corporate, individual, and international tax rates, but only a few of these provisions are actually permanent. The individual tax cut, an increased exemption for the alternative minimum tax, a doubled exemption for estate taxes, and the expanded child tax credit all go into effect on Monday and they all expire by 2025. Starting in 2019, alimony payments will no longer be deductible for newly-divorced couples and the individual mandate for the Affordable Care Act will be repealed. Finally, beginning in 2022, companies may no longer immediately write off their entire research and development expenses. Instead, companies will have to spread those costs over a span of five years.

See Michael Sheetz, Tax Changes Are Coming on Monday: Here’s When It Will Affect You, CNBC, December 28, 2017.

December 30, 2017 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0)

Friday, December 29, 2017

Clawback Under New Tax Law

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2017-12-29/a7745b54-dc00-4a44-8a5c-e11196607c47.pngIn 2012, the Senate introduced a bill designed to address problems caused by the constantly shifting estate and gift tax thresholds. Despite the potentially severe consequences this issue can cause for an individual taxpayer, under the new tax law, the Senate allows the IRS to handle the problem rather than adopting language from the 2012 bill. A possible reason for failing to adopt the provision is that the 2012 bill language may have been too insubstantial. If the 2012 bill language had been adopted, it would be possible for a taxpayer to distribute $11 million to his children while alive and then die in 2026, when the exclusion amount has reverted to an inflation-adjusted $5.5 million, with no estate tax consequences. But, if the same taxpayer had given his children $5.5 million while living and subsequently passed away in 2026 with a $5.5 million estate, he would be subject to a 40% estate tax. At face value, this system appears unbalanced and likely deserves more consideration.

See James G. Blase, Clawback Under New Tax Law, Wealth Management.com, December 27, 2017.

December 29, 2017 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Monday, December 25, 2017

Article on The Tax Lifecycle of a Single-Member LLC

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2017-12-24/773ab540-064f-468a-b1ea-a1a4ece464e9.pngF. Philip Manns Jr. & Timothy M. Todd recently posted an Article entitled, The Tax Lifecycle of a Single-Member LLC, Wills, Trusts, & Estates Law eJournal (2017). Provided below is an abstract of the Article:

The single-member LLC (SMLLC) is ubiquitous. Despite its ubiquity, the Internal Revenue Code (Code) does not squarely address its tax consequences nor even contemplate its existence. This article examines the tax lifecycle of an SMLLC through its formation, operation, and exit event (e.g., sale, gift, or deathtime transfer). 

This article identifies and isolates a tax asymmetry that arises from the U.S. Tax Court’s decision in Pierre v. Commissioner. Despite the check-the-box regulations, which disregard the SMLLC, Pierre regards the SMLLC for federal gift tax purposes. This asymmetry has several tax consequences, including a potential prophylactic immunization of transfers to SMLLCs against application of section 2036 — which claws back into the federal gross estate transfers when the transferor retains an interest — in the family partnership context. 

Consequently, this article demonstrates that the SMLLC can be used to blunt the negative effects of section 2512 (a gift tax provision), section 1015 (an income tax provision), and section 2036 (an estate tax provision). In effect, due to the Pierre asymmetry, the SMLLC is the ideal initial entity in a gifting strategy.

December 25, 2017 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Tuesday, December 19, 2017

CLE on Confronting the Challenges of Tax Reform: What Happened to the Certainty of Death and Taxes?

0000000 CLEThe American Law Institute is holding a conference entitled: Confronting the Challenges of Tax Reform: What Happened to the Certainty of Death and Taxes?, which will take place on Thursday, January 11, 2018, via telephone seminar and audio webcast. Provided below is a description of the event:

About ACTEC

The American College of Trust and Estate Counsel (ACTEC) is a nonprofit association of lawyers established in 1949. Its members are elected to the College by demonstrating the highest level of integrity, commitment to the profession, competence and experience as trust and estate counselors.

Why You Should Attend

The most sweeping changes to the U.S. Tax Code in a generation are upon us. With the expectation that a reconciled bill will be on the President’s desk before the end of the year, estate planners across the country need to be ready to answer their clients’ questions about the bill and to provide advice on its impact on their estate, tax, and financial planning. Listen to this program for a first discussion on the significance of the changes and what you need to know about them.

What You Will Learn

Anticipated topics* to be discussed by the faculty, all Fellows of The American College of Trust and Estate Counsel and highly-experienced estate and tax planning practitioners, include:

A brief summary of the relevant provisions of the tax bill

Taking advantage of the doubled exemption

Repositioning existing trusts and family investment companies

Dealing with the continued compressed brackets for irrevocable non-grantor trusts and estates

Impact of the pass-through rules on law firms, family entities, and closely held businesses

Should closely held businesses be C corporations, S corporations, limited partnerships, or LLCs?

Impact on charitable giving

*Topics subject to change pending the release of the final legislation and the provisions contained therein

Have a question for the faculty? Send your questions to tsquestions@ali-cle.org. Questions submitted during the program will be answered live by the faculty. In addition, all registrants will receive a set of downloadable course materials to accompany the program.

Who Should Attend

Estate planners and related professionals will benefit from this CLE on estate and tax planning after tax reform, jointly offered by the American Law Institute CLE and ACTEC.

December 19, 2017 in Conferences & CLE, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)