Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Tuesday, July 22, 2014

Charitable Extenders Bill Passes the House

LawH.R. 113-4719 went from the Rules Committee to the House last week. The bill, which includes charitable extenders among its five measures, overcame a motion to send it to the Ways and Means Committee to limit the extenders and was approved by the House. Though White House senior advisors will likely recommend that President Obama veto the bill, it is unclear what the President will do if the bill comes across his desk.

See, House Approves Charitable Extenders, Including a Permanent IRA Rollover, Charitable Planning, July 18, 2014.

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

July 22, 2014 in Estate Planning - Generally, Gift Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Monday, July 21, 2014

529 Plans for Grandparents


Many grandparents want to help their grandchildren pay for college, but do not know the best way of going about it.  According to a Fidelity Investments study, nearly half of grandparents expect to contribute to their grandkids’ college savings, with more than a third expecting to give $50,000 or more.  While very generous and thoughtful in nature, these contributions can also have significant tax and estate planning benefits for grandparents. 

A 529 plan is a college savings investment account that provides tax-free growth as long as the money is put toward tuition and most types of college expenses such as fees and books.  Grandparents can use 529 accounts to procure tax deductions or diminish the value of their taxable estates. 

One way to showcase 529 accounts is to highlight their advantages over other savings strategies.  For example, grandchildren who receive Series EE bonds as gifts can later be inundated with federal income taxes on the interest if they do not use funds for college.  Contrastingly, a 529 plan provides for tax-free distribution.  It also allows grandparents to give the funds to another grandchild if the intended recipient does not go to college. 

One of the caveats of a 529 plan is that it could make a grandchild ineligible for financial age.  This is because once the money is withdrawn for the beneficiary, it will count as income that schools use to determine financial aid awards.  However, grandparents can avoid this problem by waiting until their grandchild’s junior or senior year to distribute the money. 

See Robyn Post, Your Practice—Selling Grandparents on the Perks of 529 College Savings Plans, Reuters, July 18, 2014.

July 21, 2014 in Elder Law, Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Section 7520 Rates for August

RatesThe IRS has released the updated Section 7520 rates, which are used for charitable contributions. The updated August rates can be seen here.

See, IRS Updates Applicable Federal Rates for August 2014, Charitable Planning, July 18, 2014.

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

July 21, 2014 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, July 17, 2014

Using an LLC as an Estate Planning Tool

Couple doing paperwork

The Limited Liability Company (LLC) is a hybrid legal entity that is beneficial not just for small-business owners, but is also a powerful tool for estate planning.  If you want to transfer assets to your family members, but are worried about gift and estate taxes, an LLC can protect assets during your lifetime and reduce taxes owed by you or your family members.

Creating a family LLC with your children allows you to reduce not only the estate taxes your children would be required to pay on their inheritance, but it also enables you to distribute inheritance to your children during your lifetime, without being bludgeoned by gift taxes.  This is made possible while also providing the ability to maintain control over your assets. 

In a family LLC, the parents maintain management of the LLC, with children or grandchildren holding shares in the LLC’s assets, however, they do not have any management or voting rights.  This allows parents to buy, sell, trade or distribute the LLC’s assets.  Thus, parents can maintain control over the assets and protect them from financial decisions made by younger members. 

Upon establishing your family LLC, you can begin transferring assets pursuant to your state’s legal process.  You subsequently decide on how to translate the market value of those assets into LLC units of value, similar to stock in a corporation.  It then becomes possible to transfer ownership of your LLC units to your children or grandchildren. 

See Michelle Ullman, Using an LLC for Estate Planning, Investopedia, July 15, 2014.

July 17, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Article on Net Gifts

Gift 2

Tiffany B. Carmona (Bessemer Trust, Chicago) recently published an article entitled, Client Out of Exemption? Consider a Net Gift, Probate & Property Vol. 28 No. 4, 43-47 (July/August 2014).  Provided below is a portion of the article’s introduction:

An unprecedented wave of large lifetime gifts were made in 2011 and 2012 in light of the increased amount that could be given away without incurring federal gift tax under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRA 2010), Pub. L. No. 111-312, 124 Stat. 3296, and its sunset provision, which caused many taxpayers to anticipate an end to the opportunity to use the increased exclusion come 2013.  Instead, 2013 brought with it the American Taxpayer Relief Act of 2012 (ATRA 2012), Pub. L. No. 112-240, 126 Stat. 2313, which continued the increased basic exclusion amount first codified by TRA 2010.

As a result of those large 2011 and 2012 gifts, many high net worth taxpayers are devoid of exclusion for future gifting, apart from the inflation adjustments to the basic exclusion amount that ATRA 2012 sustained as well.  Being out of exclusion does not foreclose the possibility of continued planning for those taxpayers, however, because certain techniques in the estate planner’s toolkit can be employed without the application of exclusion or the payment of gift tax by the donor.  Among these is the net gift. 

July 17, 2014 in Articles, Estate Planning - Generally, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Monday, July 14, 2014

New Edition of Federal Taxation of Estates, Trusts and Gifts: Cases, Problems and Materials Released

Bloom2Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law Albany Law School) and Kenneth F. Joyce (SUNY Distinguished Teaching Professor of Law Emeritus SUNY Buffalo Law School) have recently released the Fourth Edition of their outstanding casebook entitled Federal Taxation of Estates, Trusts and Gifts: Cases, Problems and Materials along with a comprehensive Teacher's Manual.

Here is the publisher's description of the book:

This new edition of Federal Taxation of Estates, Trusts and Gifts again blends a traditional casebook approach with a problem method, to develop student understanding of the relevant rule structure pertinent to the transfer of wealth. The transactional organization facilitates student comprehension by repeatedly exposing students to certain themes, such as reason for deductibility, taxation based on passage of economic benefit, and valuation. This Fourth Edition also uses structured problems to facilitate an understanding of the doctrinal framework, analytical processes, and policy issues.

Federal Taxations of Estates, Trusts and Gifts presents a comprehensive study of the tax aspects involved in the wealth transfer process: Chapter 1 provides indispensable background on the federal wealth transfer and related income tax systems. Chapter 2 provides an overview of each of the tax systems. Chapters 3, 4, and 5 outline the basic structure of the gift, estate, and generation-skipping transfer tax systems and include an examination of underlying policy questions. Chapters 6 through 13 explore how the transfer tax systems, plus the relevant income tax rules-especially the grantor trust provisions of subchapter J-apply to various transactions, most of which are in the nature of testamentary substitutes. The income taxation of estates and non-grantor trusts and their beneficiaries is comprehensively covered in Chapter 14. The book ends with Chapter 15, which provides options for reforming, as well as alternatives to, the tax systems.

The Fourth Edition contains not only the changes made by the American Taxpayer Relief Act of 2012 as well as more recent developments, but also highlights a variety of estate planning considerations. While relying on well-recognized leading cases, it also includes recent and significant cases, rulings, and regulations that either break new ground or expand on existing law.

July 14, 2014 in Books - For the Classroom, Estate Tax, Gift Tax | Permalink | Comments (0) | TrackBack (0)

Friday, July 11, 2014

The Drawbacks of FLPs

ConFamily limited partnerships can be beneficial for shielding assets from creditors, lowering estate and gift taxes, and protecting a family business. However, FLPs have their drawbacks, such as:

  • Expense: FLPs can incur serious set up costs, including legal and appraisal fees.
  • Limitations: Not all assets are appropriate for FLPs, and including real property can result in a high tax bill.
  • Drama: FLPs do not resolve any conflicts between children after the parents are gone.
  • More limitations: The assets in the FLP are for business, not personal use.

See Tom Nawrocki, 6 Pitfalls That Clients Eyeing an FLP Need to Consider, Life Health Pro, July 9, 2014.

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

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

Wednesday, July 9, 2014

Article on Law Review Articles You Should’ve Read

Bridget CrawfordBridget J. Crawford (Pace University School of Law) recently published an article entitled, Law Review Articles You Should’ve Read (But Probably Didn’t) in 2013, Tax Notes, Vol. 143, No. 11, June 17, 2014. Provided below is the abstract from SSRN:    

This short column is part of the annual Tax Notes issue that highlights noteworthy law review articles published during the previous year. In this piece, I identify articles relating to estate and gift taxation that practitioners likely will find of interest. The articles reviewed (in alphabetical order by author's last name) are: (1) Ellen Aprill, "Reforming the Charitable Contribution Substantiation Rules," 14 Fla. Tax Rev. 275 (2013); (2) Arianne Renan Barzilay, "You're on Your Own, Baby: Reflections on Capato's Legacy," 46 Ind. L. Rev. 557 (2013); (3) John F. Coverdale, "Of Red Bags and Family Limited Partnerships: Reforming the Estate and Gift Tax Valuation Rules to Achieve Horizontal Equity," 51 U. Louisville L. Rev. 239 (2013); (4) John P. Goldberg and Robert H. Sitkoff, "Torts and Estates: Remedying Wrongful Inheritance," 65 Stan. L. Rev. 335 (2013); (5) Adam Hirsch, "Incomplete Wills," 111 Mich. L. Rev. 1423 (2013); (6) Grayson M.P. McCouch, "Who Killed the Rule Against Perpetuities?" 40 Pepp. L. Rev. 1291 (2013); (7) Carla Spivack, "Killers Shouldn't Inherit From Their Victims -- or Should They?" 48 Georgia L. Rev. 145 (2013).

Special thanks to Professor Adam Hirsch (University of San Diego) for bringing this article to my attention.

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

Monday, July 7, 2014

5 Questions To Ask Yourself Before Gifting

Gift 2

While gifts can serve as effective estate planning tools, they can also cause problems, both for the donor and the recipient.  Below are a few questions to ask yourself before making a gift:

  1. Why are you making the gift? Are you gifting as an expression of love or is it for tax planning and long-term care purposes?  If it is the latter, make sure there is a benefit to the transfer.  If the value of your assets totals less than the estate tax threshold in your state, your estate will pay no tax. 
  2. Are you keeping enough money? If you are making large gifts, you may need to do budgeting to make sure that you will not run short for your basic needs.
  3. Is it really a gift?Are you expecting the money to be paid back or for the recipient to perform some task for you?  Make sure that the beneficiary of your generosity is on the same page as you.
  4. Are you sure it is a gift? A gift may not really be a gift is if you expect the recipient to hold the funds for you or let you live in or use a house that you have transferred.  These are “gifts with strings attached.” 
  5. Is the gift good for the recipient? If the recipient has special needs, the funds could make her ineligible for various public benefits, such as Medicaid, Supplemental Security Income or subsidized housing.  Making many gifts to the same person may create a dependency that interferes with the recipient learning to stand on his or her own two feet. 

See 5 Questions to Ask Before Making Gifts for Medicaid or Tax Planning, Elder Law Answers, June 27, 2014. 

July 7, 2014 in Elder Law, Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, July 3, 2014

IRS Introduces New 1023-EZ Form


Yesterday the IRS introduced a shorter application form to help small charities apply for 501(c)(3) tax-exempt status with ease.  “This is a common sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well.  The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.”

The new, Form 1023-EZ, available on IRS.gov, is three pages long, compared with the standard 26 page Form 1023.  Most small organizations qualify to use the new streamlined form.  “Previously, all of these groups went through the same lengthy application process—regardless of size.  It didn’t matter if you were a small soccer or gardening club or a major research organization.  This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”  This change will help the IRS to speed the approval process for smaller groups and open up resources to review applications from larger, multifaceted organizations while dropping the application backlog.   

Further details regarding the form can be found in Revenue Procedure 2014-40. 

See New 1023-EZ Form Makes Applying for 501(c)(3) Tax-Exempt Status Easier; Most Charities Qualify, IRS, July 1, 2014. 

July 3, 2014 in Estate Planning - Generally, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)