Wednesday, April 19, 2017
At 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.
Tuesday, April 11, 2017
Terry 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.
Monday, April 3, 2017
After the United States House of Representatives recently failed to pass the American Health Care Act, President Trump and his administration will have their sights set on new legislation for tax reform. Consequently, insurance companies and estate planners are taking notice, as their clients will be greatly affected. In lieu of repealing the estate tax, a capital gains tax could be imposed, while the fate of the gift tax is still unclear. These uncertainties make for a hazy tax-planning environment.
See Warren S. Hersch, Now in the GOP’s Crosshairs on Capitol Hill: The Estate Tax, Think Advisor, March 27, 2017.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
Thursday, March 23, 2017
James R. Repetti recently published an Article entitled, Taft v. Bowers: The Foundation for Non-Recognition Provisions in the Income Tax, 42 ACTEC L.J. (2017). Provided below is an abstract of the Article:
Taft v. Bowers is a Supreme Court decision that is rarely studied in law schools or discussed by scholars. Yet, it is a case of vast significance. In the Taft decision, the Supreme Court confirmed that Congress may create non-recognition exceptions to the income tax that merely defer the recognition of income, rather than permanently exclude it. If the Taft case had been decided differently, it is likely that the number of non-recognition provisions in the Internal Revenue Code ("Code") would be significantly reduced.
Tuesday, March 7, 2017
In January, the Large Business and International Division announced the launch of its thirteen new campaigns that focus on areas which the IRS suspects it can garner additional revenue. As the number of audits conducted by the IRS continues to decrease, the 2017 solution will focus on target-rich environments and getting the most money out of each audit in order to keep money flowing to the United States Treasury. As a result, this means that there will be stricter scrutiny of those people and companies that are likely to hide money or underreport their tax burden. Accordingly, tax specialists are warning their clients and requesting that they hand over substantially more information to the IRS. The best practice will be to respond promptly and thoroughly so that the IRS will cease any further investigation.
See Ben Steverman, This Year’s IRS Audits Are Bad News for the Rich, Private Wealth, February 28, 2017.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.
Friday, February 17, 2017
Foreword – The Supreme Court’s Estate Planning Jurisprudence by Bridget J. Crawford
The Four Horsemen and Estate Taxation by Jasper L. Cummings, Jr.
The U.S. Supreme Court and the Law of Trusts and Estates: A Law Reformer’s Perspective by Thomas P. Gallanis
Irwin v. Gavit: Income Is (Sometimes) in the Eye of the Beholder by William P. LaPiana
Taft v. Bowers: The Foundation for Non-Recognition Provisions in the Income Tax by James R. Repetti
Helvering v. Clifford: The Supreme Court Spoils the Broth by Mark L. Ascher
Helvering v. Horst: Gifts of Income from Property by Jerome M. Hesch & David J. Herzig
Helvering v. Safe Deposit & Trust Co.: Underestimating the Power of a Power of Appointment by Samuel A. Donaldson
Oklahoma Tax Commission v. United States: Death Taxes on Restricted Indian Personalty by Thomas E. Simmons
Smith v. Shaughnessy: Slippery Remainder Interests and the Intersection of Gift and Estate Taxes by Ann-Marie Rhodes & Erica E. Lord
Robinette v. Helvering: Valuation of Gifts to Split-Interest Trusts by Stephanie E. Heilborn & Cindy Zhou
Merril v. Fahs: Release of Marital Rights Is Insufficient Consideration for Transfer Tax Purposes by Kevin E. Packman
Fidelity-Philadelphia Trust Co. v. Smith: Form over Substance? by Deborah V. Dunn & Domingo P. Such, III
Commissioner v. Estate of Noel: The Double Life of Life Insurance by John McGown, Jr. & Jason Melville
Commissioner v. Estate of Bosch: 50 Years of Relevance by Jonathan G. Blattmachr & Madeline J. Rivlin
United States v. Estate of Grace: Seeking a More Objective Test for the Application of the Reciprocal Trust Doctrine by Dennis I. Belcher & Kristen Frances Hager
United States v. Byrum: Too Good to Be True? by Ronni G. Davidowitz & Jonathan C. Byer
Dickman v. Commissioner: Loans as Property Transfers by Carlyn S. McCaffrey & John C. McCaffrey
Commissioner v. Estate of Hubert: How the I.R.S. Stole Hubert’s Blessing by Kristen E. Caverly
United States v. Windsor: The Marital Deduction that Changed Marriage by Lee-ford Tritt
Friday, January 27, 2017
Russell James III recently published a book entitled, Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning (2017). Provided below is a summary of the book:
This book provides an introductory overview of the wide range of charitable gift planning topics with implications for income, capital gain, gift, estate and generation skipping transfer taxation, including elements of a gift, documentation requirements, valuation rules, income limitations, bargain sales, charitable gift annuities, charitable remainder trusts, charitable lead trusts, remainder interest deeds with retained life estate in homes and farms, life insurance, gifts of retirement assets, private foundations, and donor advised funds.
Tuesday, January 24, 2017
Les Raatz recently published an Article entitled, State Constitution Perpetuities Provision: Derivation, Meaning, and Application, 48 Ariz. St. L.J. 803 (2016). Provided below is an abstract of the Article:
The Rule Against Perpetuities, over the last decade or so, has attracted greater attention within areas of the estate planning bar. There are interrelated factors that are the primary reasons for this attention. One is the marketing of trusts that are designed to better protect against the ability of creditors of the beneficiaries of a trust to reach assets of the trust to satisfy their claims. Lengthening the period that such assets may remain unvested in beneficiaries in the trusts is touted as enhancing their value and usefulness. The longer period to defer vesting also has beneficial estate tax consequences. If trust property can be held for generations in a trust not subject to the common-law rule requiring the vesting of interests of the trust in the beneficiaries of the trust within a period ending twenty-one years after the death of the last to survive of those living when the trust became irrevocable, then inclusion of trust assets in the gross estates of beneficiaries for federal estate tax purposes is avoided to a greater extent.
Another less considered estate and income tax consequence is the ability to cause inclusion of trust property in the gross estate of a decedent by means of the decedent springing the Delaware Tax Trap (“DTT”) in order to cause the basis of the property to be “stepped up” to its fair market value at the date of the decedent’s death when no estate tax would arise. The DTT occurs when a person holding a power of appointment over property in trust appoints the property in further trust effective upon the person’s death and grants another a power to thereafter appoint the property, which second power may be exercised to postpone vesting over a perpetuities period determined from a different date than the date of the perpetuities period applicable to the first power. The intentional triggering of the DTT is a new planning device that arose from the substantial increase in the federal estate tax exemption. If the beginning date applicable to the perpetuities period in which the property must vest pursuant to exercise of the second power would otherwise violate the common-law rule, then state legislation must permit the variance.
Thursday, January 19, 2017
Jonathan G. Blattmachr & Martin M. Shenkman recently published an Article entitled, Planning in a Time of Uncertainty: Part I—Why Hitting the Pause Button May Not Be the Optimal Approach, Tr. & Est. 106 (Jan. 2017). Provided below is an abstract of the Article:
The election of Donald J. Trump as our 45th President was largely unexpected. While it’s difficult to forecast the specifics of what that will mean during his term, and, perhaps, his second term, predictions can be useful to evaluate current planning. President-elect Trump has proposed wide-ranging changes to the nation’s tax system that will affect virtually all Americans and their advisors. He appears to have made tax legislation a priority for his administration. He’s suggested substantial reductions in corporate and individual tax rates and the simplification of the tax system generally through elimination of many deductions and other complexities. Estate planners, in particular, are already facing a dramatic impact on their practices, as many clients have hit the pause button on planning in anticipation of a possible repeal of the estate tax. This may not be the optimal approach for clients, and this two-part article will explore why.
Wednesday, January 11, 2017
Gail E. Cohen recently published an Article entitled, In Like a Lamb, Out Like a Lion: For Fiduciaries, 2016 Started Out Quietly, but 2017 Promises to Be a Wild Ride, Tr. & Est. 28 (Jan. 2017). Provided below is a summary of the Article:
The year 2016 started out quietly, seemingly a continuation of the status quo. We continued acting as fiduciaries of trusts that took advantage of tried and true tax strategies. Professional fiduciaries received good news in April when the Supreme Judicial Court of Massachusetts overturned the troubling Pfannensitehl decision of 2015, thereby providing assurance that discretionary trusts weren’t subject to claims of divorcing spouses in Massachusetts. Later in the year, as expected, the Internal Revenue Service put forth long-awaited proposed regulations intended to curtail the use of valuation discounts in gift and estate planning for family entities.
Then came Donald J. Trump. Seemingly everyone expected Hillary Clinton to win the presidency, thereby continuing the status quo, albeit with higher income taxes and higher estate and gift taxes (or at least a lower exemption from those taxes). Up until the election, there was a flurry of activity to take advantage of valuation discounts prior to the Internal Revenue Code Section 2704 regulations becoming final. Now, we don’t know exactly what 2017 will bring.
A few items to watch: lower income tax rates; elimination of gifts of appreciated assets to private charities; elimination of estate and gift taxes and presumably the generation-skipping transfer (GST) tax; income tax at death or carryover basis; and non-adoption of the proposed IRC Section 2704 regulations. Looking ahead, we should examine the potential impact that these actions may have on professional fiduciaries.