Wills, Trusts & Estates Prof Blog

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

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Friday, August 22, 2014

Estate Planning Under New York's Tax Laws

Money money money

Previously in New York, estates worth one million or less were exempt for New York tax.  Presently, the exemption is $2,062,500.  It increases to $3.125 million in 2015, $4,187,500 in 2016 and $5.250 million in 2017.  If you die leaving more than 105 percent of the prevailing New York exemption, your entire estate is subject to New York tax.  However, you would be no worse off than before the law changed, since the old $1 million exemption is manufactured into the new tax rates.

See Lynn Brenner, Estate Planning Under New York’s Estate Tax Exemption Rules, Newsday, Aug. 21, 2014. 

August 22, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Understanding FATCA


Enacted in 2010, the Foreign Account Tax Compliance Act (FATCA) is America’s global tax law.  Not only does FATCA effect Americans, but its impact on the world is most astounding.  FATCA requires foreign banks to reveal Americans with accounts over $50,000 and non-compliant institutions could be frozen out of U.S. markets, thus, everyone is complying.  Provided below are a few facts about FATCA:

  1. FATCA Grew out of a Controversial Rule.  In 2009, the IRS struck a deal with UBS for $780 million in penalties and American names.  Since then, for hundreds of Swiss banks taking a DOJ deal, banking is more transparent. 
  2. China and Russia Agreed.  While Russia and China have been notoriously difficult, they are even on board with the agreement. 
  3. FBARs are Required.  FBARs predate FATCA, yet, be ready for duplicate reporting.  FATCA adds to the burden, and does not replace FBARs.  U.S. persons with foreign bank accounts exceeding $10,000 must file an FBAR by each June 30th
  4. No Repeal in Sight.  Republicans have mounted a repeal effort, however, there is no serious effort to repeal FATCA.  Canadians recently filed suit to block FATCA and prohibit handover of U.S. names to the IRS.  The legal claim challenges the constitutionality of the agreement the Canadian government struck with the United States.   
  5. Other Passports Won’t Work.  Dual nationals or U.S. Green Cardholders think they can bypass FATCA by using a non-U.S. passport and non-U.S. address with their foreign bank.  However, this is not possible.  Your bank and IRS will eventually figure it out. 

See Robert W. Wood, 10 Facts About FATCA, America’s Manifest Destiny Law Changing Banking Worldwide, Forbes, Aug. 19, 2014.

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

Tuesday, August 19, 2014

Picking Up the Taxes

Estate tax2

When a loved one dies, all financial debacles do not automatically disappear.  Someone must step up to handle the resulting financial matters.  This person is often named in the decedent’s will as the estate executor; yet if there is no will, the probate court may appoint an executor.  If you end up with the job, you will identify the estate’s assets, pay off its debts, and then distribute what is left to the rightful heirs and beneficiaries.  You are also responsible for filing any required tax returns and paying any taxes due. 

There are several tax issues executors should be cognizant of including those appearing on the income tax return.  Make sure to look out for medical expenses.  If large uninsured medical expenses were incurred but not paid before death, the executor must choose how they are treated for federal income tax purposes.

You may also have to file a federal income tax return for the estate.  Once an individual has passed away, any income generated by his or her holdings after death becomes part of the estate and is taxed on the estate’s own federal income tax return.  

See Bill Bischoff, Dying Doesn’t Make the Taxman Go Away, Market Watch, Aug. 19, 2014.

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

August 19, 2014 in Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Rising Costs of Raising a Child

Children 3

New parents should be warned that it could cost almost a quarter of a million dollars to raise a child—not including the cost of college.  According to newly released estimates from the U.S Department of Agriculture, raising a child born in 2013 to the age of 18, it will cost a middle-income couple just over $245,000. 

While childcare and health care costs are rising, the country’s median income remains where it was before the recession.  Growing transportation and food costs also consume a large part of family budgets.   

For families who are trying to cut costs, consider looking on local parenting blogs or websites to find everything from free baby clothes to a family looking to share a nanny.  Make sure to take advantage of tax credits.  Many employers offer tax-advantaged accounts that let parents pay for health and child care expenses with before-tax dollars.  Moreover, make sure to plan ahead.  Expectant parents should prepare for the added costs ahead of time and try to save each month.

See Melanie Hicken, Average Cost to Raise a Child Hits $245,00, ABC 7, Aug. 18, 2014.

August 19, 2014 in Estate Planning - Generally, 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)

The Importance of Pre-Nuptial Estate Planning Discussions Post Windsor

CoupleIn a post-Windsor world, married same-sex couples now have equal treatment for federal tax purposes, creating new considerations for estate planning for same-sex couples. Now, all couples should give great weight to the importance of having talks about finances prior to marriage. A recent National Fatherhood Institute survey reveals that communication and finances are the top two causes of divorce. It is important that all couples discuss the financial basics, such as spending habits and expense sharing, as well as their goals for retirement and estate planning.

See Don McNay, Same Sex Marriage, Taxes and Winning the Lottery, Huffington Post, Aug. 10, 2014.

August 12, 2014 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Monday, August 11, 2014

State Income Tax: Relief Is In Sight

State income tax

Corporate tax inversion is the tax strategy whereby large multinational corporations shift assets or company headquarters to other countries in order to profit from a lower corporate income tax rate.  While some politicians and Americans believe tax inversion strategies are unpatriotic, others retort that corporations are following the law and capitalizing on the rules of the game they are given. 

If you are one of the individuals who lean on the side of wanting to take advantage of all legally available options to reduce taxes and feel left out, your wait is over.  A strategy called the “personal tax inversion” can be used to avoid potentially hundreds of thousands of dollars in state income taxes.  The personal tax inversion strategy is somewhat new, and can help you pay less state income tax.  However, it is not right for every situation. 

With personal tax inversion, there is a way to shift assets to a state without any income tax.  You are able to accomplish this by shifting assets to a trust located in a different state within the United States. 

By using a non-grantor trust, you can place assets into a trust and you are no longer considered the “owner” for tax purposes.  Thus, the trust itself, rather than you, is responsible for paying income tax.  If the trust is administered in a tax-free state, the trust pays no tax.  However, there is a caveat.  If you transfer assets outside of your control, you may pay gift taxes.  To remedy this situation, you may structure an Incomplete Non-Grantor Trust (NING) in a state such as Nevada, Delaware, or Alaska.  The NING is a perfect solution because it gives up the perfect amount of control. 

See Robert Pagliarini, Avoid State Income Tax With A Personal Tax Inversion, Forbes, July 31, 2014. 

August 11, 2014 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, August 9, 2014

Life Insurance Taxes

Life Insurance

Taxpayers are recurrently surprised by the fact that the ownership or receipt of a life insurance policy can result in taxable income.  This was the case in Gluckman v. Commissioner, No. 13-761 (2d Cir. Nov. 22, 2013), where taxpayers maintained that the distribution of the life insurance policies to them on their employer’s withdrawal from a non-qualified plan should not be subject to tax. 

The Court rejected the Gluckman’s argument that the policies were subject to a sizeable risk of forfeiture.  Just because the Gluckmans chose to transfer the policies into a new non-qualified plan does not repudiate the fact that the Gluckmans had control of the disposition of the policies during the tax years, and therefore, were subject to income tax on the value of such assets. 

See Kathy Sherby and Stephanie Moll, Valuation of Life Insurance is Not Always the Issue, Mondaq, July 7, 2014.

August 9, 2014 in Estate Planning - Generally, Income Tax, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Friday, August 8, 2014

Planning for Your Second Family


For families with a mix of biological children and stepchildren, first and second spouses, estate planning can be somewhat more intricate.  No one wants to leave his or her heirs with a mess to sort out or fight over.  Below are top six things to remember when you are planning for a blended family:

  1. Length of time family has been together.  If you and you second spouse married when your children were young, or if you had your own children together, you have a large family.  “In these situations, you truly have a blended family, and you should proceed with your will as if all your children were your biological children and your second spouse is your first spouse.” However, if your children were older when you remarried, you will need to make separate provisions for biological children and stepchildren.
  2. Provide for your second spouse, but provide for children immediately.  Do not structure your will so your children have to wait for your spouse to die before they get their inheritance. 
  3. Plan for home and property.  “If it’s the family home where your children grew up, are they going to be OK with their stepparent living there fore then next 30 years?  How do you provide for that?”  Each circumstance is different and something you must take into consideration.
  4. Worry less about taxes.  Don’t let taxes become a priority; rather, make equal distribution the goal.  “If people are happy, in the long run it’s cheaper.”
  5. Communication is key.  Communicate with all parties involved and let them know what you want to do and how you want to accomplish them.  Manage family expectations, tell them your perspective and ask their opinion.
  6. Consult experts.  To plan properly, you may need a lawyer, financial planner and a family therapist.

See Kathryn Tuggle, 6 Things to Consider When Estate Planning for Your Second Family, The Street, Aug. 7, 2014.

August 8, 2014 in Estate Planning - Generally, Income Tax, Wills | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 6, 2014

Four Estate Planning Trends

Here are four current estate-planning trends caused by recent developments:

  1. Increased favor and use of self-settled trusts: These trusts are allowed in 15 states and the current  tax exemptions for gift and generation-skipping transfer at $5.34 million is making these a popular choice for asset protection.
  2. Seeking favorable states for asset protection for discretionary trusts: After a recent Florida case that protects trustees from being forced to use their discretion to make disbursements, the search is on for a similar solution for third-party discretionary trusts.
  3. Rising State Income Taxes Changing Estate Planning Considerations: With many states' income tax rates increasing, the interest in private placement life insurance and trusts creation in states with lower tax is on the rise as well.
  4. The creation of foreign grantor trusts by grantors without ties to the U.S.: The creation of trusts by foreign grantors that do have property or family in the U.S. is a new and increasing trend.

See Al W. King III, What’s Trending in the Estate-Planning World, Wealth Management, July 24, 2014.

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

August 6, 2014 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)