Wills, Trusts & Estates Prof Blog

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

Tuesday, May 23, 2017

Article on Transfer to Limited Partnership Includible in Estate

LLP1Lewis J. Saret recently posted an Abstract entitled, Est. of Nancy H. Powell: Transfer to Limited Partnership Includible in Estate, Wealth Strategies Journal (2017). Provided below is the abstract:

On August 8, 2008, D’s son, J, acting on her behalf, transferred cash and securities to LP, a limited partnership, in exchange for a 99% limited partner interest. LP’s partnership agreement allowed for the entity’s dissolution with the written consent of all partners. Also on August 8, 2008, J, purportedly acting under a power of attorney, transferred D’s LP interest to T, a charitable lead annuity trust, the terms of which provided an annuity to a charitable organization for the rest of D’s life. Upon D’s death, T’s corpus was to be divided equally between D’s two sons. D died on August 15, 2008.
Held: D’s ability, acting with LP’s other partners, to dissolve the partnership was a right “to designate the persons who shall possess or enjoy” the cash and securities transferred to LP “or the income therefrom”, within the meaning of I.R.C. sec. 2036(a)(2).

Held, further, because D’s LP interest was transferred, if at all, less than three years before her death, the value of the cash and securities transferred to LP is includible in the value of her gross estate to the extent required by either I.R.C. sec. 2036(a)(2) or I.R.C. sec. 2035(a).

Held, further, neither I.R.C. sec. 2036(a)(2) nor I.R.C. sec. 2035(a) (whichever applies) requires inclusion in the value of D’s gross estate of the full date-of-death value of the cash and securities transferred to LP; only the excess of that value over the value of the limited partner interest D received in return is includible in the value of D’s gross estate. I.R.C. sec. 2043(a).

Held, further, J’s transfer of D’s LP interest to T was either void or revocable under applicable State law because D’s power of attorney did not authorize J to make gifts in excess of the annual Federal gift tax exclusion; consequently, the value of the 99% limited partner interest in LP, as of the date of D’s death, is includible in the value of her gross estate under I.R.C. sec. 2033 or I.R.C. sec. 2038(a).

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

May 23, 2017 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Saturday, May 20, 2017

10 Tips for Tumultuous Tax Times

RK_Post_-_Death_and_Taxes_1024x1024The only things that ever seemed to be certain were the inevitability of death and the persistent and ever-present burden of taxes. Now, taxes are coming into question (sort of). President Trump and the Republican-dominated congress are expected to change the laws concerning estate and gift taxes. Unfortunately, for estate planners, neither the extent nor the scope of these changes are actually known. John O. McManus, founder of an estate planning firm in New York, has some helpful strategies to deal with the uncertainty. McManus’ friendly tips push flexibility in planning and he says these strategies work in both the long and short term, and are beneficial for the mass affluent as well as the ultra-wealthy.

See Karen Demasters, Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now, Private Wealth, May 12, 2017.

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

May 20, 2017 in Current Events, Death Event Planning, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Thursday, May 18, 2017

ACTEC Annual Meeting Summary

CLEThe American College of Trust and Estate Council (ACTEC) is a nationwide organization consisting of nearly 2,600 lawyers. The central objective of the organization is to study and improve trust, estate and tax laws, procedures and professional responsibility. Recently, ACTEC held its annual meeting in Scottsdale, Arizona. A veritable oasis in the desert, Scottsdale is known for its spa resorts and expansive golf courses.

The topics covered at the annual meeting include:

  • Estate planning current developments over the last year
  • Trachtman lecture (by Hanson Reynolds) regarding end-of-life decisions
  • Planning Issues for S Corporations and C Corporations
  • Charitable bequests of retirement assets
  • Tips for estate and gift tax audits from trial lawyers' perspectives
  • Common reporting standard and FATCA
  • Community property in common law states
  • Trusts in divorce, and
  • Structuring settlement agreements

Steve R. Akers, Senior Fiduciary Counsel at Bessemer Trust, wrote a synopsis of his observations at the event. His musings can be found here.

May 18, 2017 in Conferences & CLE, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

The Flexible SLAT

Home-large-gumbyThe spousal lifetime asset trust (SLAT) is an excellent means for married clients with moderate to ultra-high net worth to gain planning flexibility and tax benefits in an uncertain and tumultuous estate-planning environment. The use of a SLAT enables clients to avoid probate, reduce estate taxes, and reduce capital gains on death tax. SLATs may also function as life insurance trusts and can be utilized to manage and protect life insurance proceeds. This is important given the central role life insurance takes in the estate and financial planning processes. These are among only a few of the benefits associated with SLATs, but they do require teamwork for proper optimization.

Wealth advisors should be included in order to manage securities both inside and outside the trust. These advisors should also be on the lookout for appreciated property swaps that may be advantageous. Estate planners are useful in growing assets inside the SLAT that are outside the client’s estate, and accountants should look to the SLAT to help the client avoid state income tax. While tax reform is currently nebulous at best, SLATs can serve clients as a flexible planning tool with a unique ability to meet their multifaceted goals.

See Andrew T. Wolfe & Martin M. Shenkman, SLATs Provide Flexible Plans for Many Clients, Wealth Management, May 15, 2017.

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

May 18, 2017 in Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Monday, May 15, 2017

Estate Planning Strategies for Uncertain Tax Reform

Tax reformYou often hear the only things certain in life are death and taxes, but now, taxes might even be in question. President Trump and the Republican Congress are expected to revamp taxes, but no one is sure what that might entail. But while Americans wait for the tax reform, there are some strategies for estate planners to follow. Accordingly, you should continue to encourage your clients to make annual gift tax exclusions, while contributing to 529 Plans as well as educational institutions and medical facilities directly. Implementing grantor retained annuity trusts (GRATs) will also help, as interest rates remain low, allowing clients to pass investment assets to their children without worrying about the gift tax exemption. Further, installment sales to a GRAT will not realize capital gains taxes. Additionally, family limited partnerships remain a viable tax minimization strategy to centralize investments, provide asset protection, and expand family investment opportunities. Community property trusts allow the surviving spouse to enjoy a step-up in basis, further creating an opportunity for the spouse to sell assets without paying capital gains taxes. Overall, implementing flexible planning into an estate plan will allow your clients to better plan for their future in uncertain times.

See Karen Demasters, Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now, Private Wealth, May 12, 2017.

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

May 15, 2017 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Friday, April 28, 2017

Tax Judge Rules Appraiser Placed Lowball Valuation on Estate's Painting

The youngerA Sotheby’s official appraised a painting by Pieter Bruegel the Younger back in 2005 at $500,000, but when the owner of the piece went to sell the painting, it drew more than four times that amount, selling for $2.1 million. So why such a wide gap between the estimated and actual value? The appraiser claimed that artwork prices spiked due to a large influx of Russian buyers who were eager to obtain old masters. However, the United States Tax Court took issue with this matter in a recent decision, ruling that the appraiser had most likely placed a lowball estimate on the piece to “curry favor” with the owner, an estate likely facing a substantial tax bill. With the IRS viewing valuations for artworks in income, estate, and gift tax returns as a potential area for abuse, it comes at no surprise that the IRS challenged the low value placed on the painting, seeking an additional $781,488 in taxes from the estate.

See Colin Moynihan, Don’t Blame the Russians, Tax Judge Tells Sotheby’s Expert, N.Y. Times, April 23, 2017.

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

April 28, 2017 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Cases | Permalink | Comments (0)

Wednesday, April 26, 2017

Estate Planning Will Not Become a Thing of the Past

Estate financial planThe estate tax repeal seems inevitable at this point. Accordingly, many people have been wondering whether traditional estate planning will be a thing of the past. The answer? No, estate planning will continue to be an essential part of clients’ financial future. The timing of an estate tax repeal remains uncertain, which could potentially force an excise in planning. The estate planning process should also consider an increase in capital gains taxes to substitute the repeal of the estate tax. Although a repeal may be coming, trusts and other tax efficient ways to distribute wealth are still relevant to estate planning. Overall, the potential estate tax repeal should not diminish the importance of comprehensive estate planning.

See Michael J. Nathanson, Ian D. Barclay & Cary P. Geller, Estate Planning: It’s Not Over, Financial Advisor, April 3, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) & Joel Dobris (Professor of Law, UC Davis School of Law)  for bringing this article to my attention.

April 26, 2017 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, April 19, 2017

The Future of the Gift Tax

Gift taxAt this point, Americans are convinced that the estate tax will be eliminated, but what about the gift tax? Estate planners are cautioning that this uncertainty should not be taken lightly, as changes to the gift tax could create undesired tax ramifications or potentially make it easier to avoid taxes. Because the gift tax is often viewed as a backstop to the estate tax, some may view their combined elimination as a sound option, but not so fast. The gift tax also backstops the income tax, potentially allowing people to play games and income-shift, while realizing a reduced number of tax brackets. One way to prevent taxpayers from playing income-shifting games is to increase the capital gains tax; however, this strategy could ultimately create further complications for dynasty trusts. Whatever the outcome may be, it is important for estate planners to advise their clients on the potential consequences of any changes to the gift tax.

See Allyson Versprille, Gift Tax Tweaks Could Lead to Unsavory Avoidance Tactics, Bloomberg, April 10, 2017.

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

April 19, 2017 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Tuesday, April 11, 2017

Article on South Dakota Special Spousal Property Trusts

Spousal trustsTerry Prendergast recently published an Article entitled, South Dakota Special Spousal Property Trusts: South Dakota “Steps-Up” to the Plate and Hits a Home Run for Surviving Spouses, 61 S.D. L. Rev. 431 (2016). Provided below is an abstract of the Article:

With the increased emphasis on income tax planning caused by the higher estate and gift tax exemptions and portability, many practitioners are revisiting the issue of “stepped-up” basis, which has always favored joint owners who live in community property states. South Dakota's legislature, reacting to this phenomenon, added Special Spousal Trust legislation in 2016 that enabled surviving spouses whose property passes through the trust to receive a 100% stepup in basis on the property for federal income tax purposes, thus creating a benefit similar to that of surviving spouses in community property states.

April 11, 2017 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Article on Foreign Trusts & U.S. Tax Implications

Foreign trustAlice Rokahr & Maggie Cockburn recently published an Article entitled, Foreign Trusts and U.S. Tax Implications, 61 S.D. L. Rev. 420 (2016). Provided below is an abstract of the Article:

This article focuses on both the exposure of non-U.S. persons to the U.S. transfer and income tax systems, as well as the U.S. tax treatment of the bequests and trusts that non-U.S. persons leave for their beneficiaries. This article also demonstrates some of the ways in which the rules can work to the benefit or detriment of U.S. and non-US. persons for estate planning purposes. This article explains certain threshold tax concepts that are key to understanding how the U.S. taxes individuals. This article discusses how the U.S. classifies trusts as foreign or domestic, the U.S. tax implications of grantor and non-grantor trusts, and how the U.S. gift and estate taxes can affect individuals who are neither citizens nor residents of the U.S. This article also explains why a foreign settlor may wish to include a U.S. trust as a part of their tax and estate plan. Finally, this article includes case studies illustrating the application of the rules discussed.

April 11, 2017 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)