Wills, Trusts & Estates Prof Blog

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

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Wednesday, September 24, 2014

Dividing Art in Contentious Times


During divorce proceedings or when a family member leaves behind a large estate, some of the most contentious fights that erupt are over the artwork.  “I’d put it in the same category as child-custody battles,” says family attorney Suzanne Landers.  “It takes far longer to decide who gets what painting or sculpture than it does to divvy up houses, cars or even money.” 

However, there are a few basic principles on how to decide (peaceably and equitably) who gets what.  For divorcing couples, the first step is to develop a detailed list of all the art bought before and during the marriage.  Art bought or obtained before the marriage, or acquired after the couple has separated or filed for divorce is not considered marital property and belongs to the same spouse who purchased it originally.   It may also be a good idea for couples to hire an appraiser.  Artworks may then be divided equally by value, or other assets can be made part of the bargaining—the house, the vacation home, etc. 

Decisions about art should be ingrained within the estate planning process.  Like houses, art that passes at death receives a step-up in value for tax purposes.  Sometimes collectors will sell art to help cover the cost of estate taxes.  By placing the art in a tax-exempt charitable remainder unitrust, the collector can receive distributions from the sale for the rest of his or her life, taxable as ordinary income, allowing the collector to avoid a 28 percent capital-gains tax.  When the collector dies, remaining distributions go to a designated charity.  If an art collection is donated to a nonprofit, the gift can be made all at once or in installments. 

See Daniel Grant, Tips for Dividing Art in a Divorce or Death, The Wall Street Journal, Sept. 21, 2014. 

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

September 24, 2014 in Estate Administration, Estate Planning - Generally, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, September 19, 2014

EU Finds Spain's Taxes Discriminatory

EU Court

The European Court of Justice recently ruled that Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents.  In Spain, there are a complex range of tax relief options that can reduce the tax to zero for residents, however, these have previously been unavailable to non-residents.

 Non-residents who have been discriminated against by paying more tax than Spaniards for inheritances or gifts of property will likely be owed a refund of the difference.  The verdict earlier this month could open the floodgate to thousands of people reclaiming their tax.  Thus far, the Spanish authorities have not responded to the ruling.  Spain has six months to change its laws, which should come by January 2016.   

The reason for the decision rested on the notion that charging other members of the EU different rates to Spanish residents went against the spirit of the European union.  The court said the Spanish legislation was discriminatory and there was no reason why inheritance tax should be charged at a higher rate for non-Spaniards than for Spaniards. 

See Liz Phillips, EU Court Rules Against Spain Over Discriminatory Tax Rules, The Telegraph, Sept. 18, 2014.

September 19, 2014 in Estate Planning - Generally, Gift Tax, New Cases, Travel | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 17, 2014

Article on Gain from the Value of a Good Valuation

Tax QuestionsEdward A. Renn, James I. Dougherty & Marissa Dungey recently published an article entitled, Gain from the Value of a Good Valuation, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the introduction of the article:

Estate, gift, and generation-skipping transfer (GST) taxes all target and tax the transfer of property from a donor to a done. Obtaining a value of the property when computing the potential tax liability and structuring transfers is essential to tax-efficient planning and proper tax reporting. With easy-to-value assets, such as cash or marketable securities, valuations are straightforward. For other assets such as closely held business interests or art, determining the correct value is a task easier said than done. If hard-to-value assets are overvalued, the taxpayer will overpay on taxes (or unnecessarily use a portion of the taxpayer’s lifetime exemption). If the assets are determined to be undervalued by the IRS on audit, in addition to the time and expense of the audit and additional tax or use of credits, the taxpayer will have to pay interest on the underpayment of tax and may be subject to penalties.

September 17, 2014 in Articles, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 16, 2014

Making Charitable Donations With Life Insurance

Life insurance

Each year millions of Americans make donations of cash and property to the charities of their choice.  While these donations can provide valuable tax deductions, many donors wish that they could do more for the charities they support.  Thus, it would be wise for some donors to consider using their life insurance as a more effective means of leveraging the support they provide. 

One way of doing this is to gift a life insurance policy, which can in turn greatly reduce the donor’s taxable estate and save thousands of dollars in estate taxes.  There is no limit on the size of the policy that may be donated, since charitable donations have no ceiling for estate tax purposes.

Naming a charity as a beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy.  However, this strategy does not offer the income tax advantages that come with the gifting policy, although it still reduces the donor’s estate by the amount of the death benefit. 

It is also possible for policyholders to receive the dividends paid to their life insurance policies in cash and donate them to a charity.  The dividends donated are deductible in the same manner as premiums paid on a gifted policy.

See Mark P. Cussen, Using Life Insurance to Make Charitable Donations, Investopedia.

September 16, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 10, 2014

Estate and Income Tax Advantages of 529 Plans

Student loan

Taking advantage of 529 plans is appropriate for parents and grandparents seeking to amass funds for run-away college tuition costs.  Contributions to a 529 plan are treated as gifts for tax purposes and the contributions qualify for the $14,000 annual gift tax exclusion.  Contributions can be pre-funded for five years, meaning $70,000 per parent.  Hence, funds in the 529 are removed from the donor’s estate faster than if contributions were made each year. 

For federal income tax tactics, the investment grows tax-free, and distributions to pay for the beneficiary's college costs are tax-free. Keep in mind, state law can affect the state income tax treatment.

There are other advantages, such as the donor controls the funds in the 529.  The only disadvantage for 529’s is if an individual is relying on financial aid, the 529 can be considered an asset, depending on who set up the plan. 

See 529 Plans: Estate Tax and Income Tax Advantages, The National Law Review, Sept. 9, 2014.

September 10, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 9, 2014

Article on The Federal Tax Treatment of Disclaimers of Future Interests

Gift BoxTrent S. Kiziah recently published an article entitled, The Federal Tax Treatment of Disclaimers of Future Interests: A Call for Reform, 39 ACTEC Law Journal No. 1 & 2 (Spring/Fall 2013). Provided below is the abstract of the article:

Federal tax laws essentially preclude individuals with a future interest from disclaiming because the time in which a qualified disclaimer can be executed may pass before the person becomes aware of the interest and long before the interest becomes possessory and fixed as to quality and quantity. This article examines the state of the law prior to enactment of these limiting tax provisions, examines the call for reform by commentators, and examines the legislative history resulting in the current law. The author asserts Congress made an informed decision albeit a poor one. The author recommends Congress revisit the issue and enact legislation to permit an individual to disclaim within a reasonable period of time after the later of occur of (1) becoming aware of the future interest or (2) the future interest becoming indefeasibly fixed.

September 9, 2014 in Articles, Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Monday, September 8, 2014

Considerations for Gifting to Grandchildren

Gift BoxThe desire of grandparents to help their grandchildren overcome financial obstacles to pursue projects and opportunities prompt many grandparents to gift to their grandchildren. Here are six considerations that should be included in the decision making-process for whether to gift to grandchildren:

  1. Should the gift really be defined as a gift, or rather a loan or an inheritance advance
  2. If the grandparent wants to keep gifts to all grandchildren equal, need based, or preference based and how each will affect the overall family dynamic
  3. Whether the gift is large enough to create tax consequences
  4. If a 529 plan is a more desirable option, if the gift is intended to assist with future higher education expenses.
  5. Can the gift be made without depleting the grandparent’s savings and ability to provide for their own financial needs
  6. The effect that the gift will have on receiving health-care benefits, such as Medicaid, if needed.

See Ryan Barry, Six Things to Consider Before Making Gifts to Grandchildren, JD Supra, Sept. 4, 2014.

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

September 8, 2014 in Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 2, 2014

IRS 2014-2015 Priority Guidance Plan Released

IRSThe 2014-2015 Priority Guidance Plan, which lists 317 priority projects for the IRS, was released last Tuesday. Among the many tax issues to be addressed through the projects, estate and trusts issues have made the lists. The plans provide the IRS with priorities for releasing guidance on tax issues, and are subject to change throughout the year so that the IRS can address new developments and tax concerns.

See Mike Godfrey, IRS Issues 2014-2015 Priority Guidance Plan, Tax News, Aug. 29, 2014.

September 2, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, August 30, 2014

Tax Management Portfolio on Estate Planning

Tax PlanningThe third edition of the Tax Management Portfolio, Estate Planning, has been published by William P. Streng, Esq. (Vinson & Elkins Professor of Law, University of Houston Law Center). This Portfolio provides helpful guidance for estate planning professionals. Provided below is a description of the Portfolio from Bloomberg BNA.

Estate Planning is designed as an authoritative and practical working tool for attorneys, accountants, and others involved in estate planning practice. The basic estate, gift, and trust planning concepts are presented in a descriptive and conveniently accessible form. Written by William P. Streng, Esq., Vinson & Elkins Professor of Law, University of Houston Law Center, and Consultant, Bracewell & Giuliani LLP, this Portfolio analyzes the development of an estate planning strategy; fundamentals of the federal transfer tax system and related federal income tax rules; lifetime donative asset transfers; gratuitous property transfers at death; generation-skipping transfers; special property transfer planning considerations (e.g., community property, life insurance, charitable transfers, closely held corporations); and post-mortem planning.

August 30, 2014 in Books, Books - For Practitioners, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 12, 2014

Three Estate Planning Tips for Limiting Taxes

Tax CutFreezing the value of assets and keeping the value of an estate from appreciating overtime can reduce the amount of taxes for an estate. Here are three estate planning tools to reduce the taxes faced by the estate.

  1. Put assets into a Family Limited Partnership to keep asset value from increasing and decrease taxes
  2. Create an Intentional Defective Grantor Trust and pay the taxes with non-trust funds to maximize trust income and decrease the value of the estate
  3. Use a Grantor Retained Annuity Trust to freeze the value of assets and keep the overall taxable value of the estate from increasing

See Brian Luster & Steven Abernathy, 3 Ways to Avoid Tax Hits in Estate Planning, Medical Economics, June 10, 2014.

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

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