Wills, Trusts & Estates Prof Blog

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

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Thursday, April 24, 2014

Constitutionality of the “Parsonage Exclusion” Challenged

GavelThe constitutionality of the “parsonage exclusion” is currently before the Seventh Circuit. Amicus briefs are flooding in and strong opinions are being expressed for both sides. The income tax exemption that excludes housing allowances for clergy from income tax is being defended by the government, even though this exemption results in a $700 million loss for the government. The Freedom From Religion Foundation is challenging the tax exemption. Amicus Briefs in support of the government’s position have come from The Alliance Defending Freedom and the Jewish Commission on Law and Public Affairs, among other groups.

See Peter J. Reilly, Clergy Out in Force to Defend Their Housing Tax Break, Forbes, April 10, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

April 24, 2014 in Income Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 23, 2014

Funding Trusts for Newborns


Some believe the best gift for a new baby is financial security, that is, a trust that will cover college costs or other future expenses.  It is fairly typical for grandparents to fund trusts for newborns, because they are likely to be more financially secure than parents and recognize that they may not be around when the child needs money for college. 

Cindy Peterson, a senior advisor at Delaware-based Lau Associates, says many of her clients use defective grantor trusts, or irrevocable trusts in which the grantor continues paying income taxes, rather than the grantor paying them out of the trust itself.  Peterson says her clients are reluctant to set up 2503(c) trusts, which require distribution at age 21.  She says giving up all of this money at once is inherently risky, and instead recommends a three-step approach with a third at one age, a third at another age, and finally access to the balance at another age.

Peterson does caution that trusts are not appropriate for everyone.  The benefits need to be weighed against the costs incurred in creating and administering the trust and income tax considerations.

See Jennifer Kelly, Trust Fund Babies: The Pros and Cons of Trusts for Newborns, The Trust Advisor, Apr. 21, 2014.

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

April 23, 2014 in Estate Administration, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Don't Rely on IRS Guidance


Judge Joseph W. Nega recently denied a motion to reconsider his earlier decision that penalized tax lawyer Alvan L. Bobrow for making an IRA rollover move that an IRS Publication says is allowed.  In his order denying the motion, Nega said, “Taxpayers rely on IRS guidance at their own peril.”

Judge Nega wrote that IRS guidance is not “binding precedent” or “substantial authority” to excuse a taxpayer from penalties if he or she follows the guidance and it turns out to be wrong.  If you think that sounds unfair, some of the nation’s most prominent tax lawyers agree with you.  The Board of Regents of the American College of Tax Counsel argues that it undermines public confidence in the tax system to tell taxpayers following IRS guidance that they “have made an error with potentially catastrophic financial consequences.”

See Janet Novack, ‘Taxpayers Rely on IRS Guidance at Their Own Peril,’ Tax Judge Rules, Forbes, Apr. 18, 2014.

April 23, 2014 in Current Affairs, Income Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

New York Changes State Income Tax for Trusts

ChangeThe changes made by New York’s Budget Bill affect income tax for trusts. Under the new law, state tax applies to income distributions that are received by beneficiaries of a New York resident trust. Grantor trusts are not affected by this tax, nor is income received by beneficiaries prior to 2014. In addition, if the trust itself is taxed by New York State income tax, then the beneficiary will not be subject to the tax.

See Stacie J. Rottenstreich and Karin Barkhorn, New York Budget Bill Makes Changes to Trust Income Tax, Bryan Cave, April 16, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

April 23, 2014 in Income Tax, New Legislation, Trusts | Permalink | Comments (0) | TrackBack (0)

Sunday, April 20, 2014

Article on ATRA and the Heckerling Institute


The changes wrought by the American Taxpayer Relief Act of 2012 were at the forefront of the 47th Annual Heckerling Institute on Estate Planning, a week-long conference for estate planning advisors.  For a summary of the speakers’ remarks on several important estate planning topics, read Estate Planning After ATRA: A Summary of the Heckerling Institute on Estate Planning by Martyn S. Babitz, J.D. (Hawthorn PNC). 

The four central points discussed at the Heckerling Institute about ATRA include:

  • Sense of permanence in federal transfer tax 
  • Role of income tax planning   
  • Portability as a planning consideration; and
  • Timing of significant gifts

April 20, 2014 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Saturday, April 19, 2014

Article on The State of Your Trust

TrusttileDennis Delaney (Hemenway & Barnes) recently published an article entitled, The State of Your Trust: Where Should a Trust Be Sited?(Feb. 18, 2014). Provided below are the trust planning pain points from Reuters:

- Tax law: state income tax on trusts vary from region to region. Some consider the location of the beneficiary and some the trustee, making for a confusing patchwork of statutes.

- Decanting: even if a trust is irrevocable, changes may be made through “decanting,” the process of distributing assets from an old trust into a new one with different provisions.

- Quiet trusts: a relatively new vehicle that lets grantors decide when they will tell beneficiaries about a trust.

See Steven Maimes, Location of Trusts A Critical Factor in Trust and Estate Planning, Reuters, Feb. 18, 2014.

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

April 19, 2014 in Articles, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, April 18, 2014

Article on Taxes and Estate Planning


Barry Cushman (Notre Dame Law School) recently published an article entitled, Tax Recognition, St. Louis University Law Journal, Vol. 58, p. 825, 2014.  Provided below is the abstract from SSRN:

This article was prepared for the St. Louis University Law Journal’s “Teaching Trusts & Estates” issue. Many law students take a course in Trusts & Estates, but comparatively few enroll in a class devoted to the federal wealth transfer taxes. For most law students, the Trusts & Estates course provides the only opportunity for exposure to some of the basic features of the estate tax, the gift tax, the generation-skipping transfer tax, and some related features of the income tax. The coverage demands of the typical Trusts & Estates course do not allow for intensive discussion of these issues, but there are numerous opportunities to introduce relevant tax considerations while teaching the substantive law of wills and trusts. Using the Dukeminier & Sitkoff casebook as an example, this article explores the opportunities for interstitial recognition of the tax issues often lying just beneath the surface of private law disputes. Seizing the opportunities that these cases present to introduce some basic tax concepts and planning strategies can alert students to simple methods of tax savings and help them to avoid costly potential estate planning errors.

April 18, 2014 in Articles, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Teaching, Trusts | Permalink | Comments (0) | TrackBack (0)

Ten Estate Planning Tips

WillMany people believe that an estate plan centers on tax planning. As a result, people do not feel the need to have one. The problem is an estate plan involves much more than tax issues, and for most folks the non-tax items are more significant than tax planning. Below are a few guidelines and tips that Bob Carlson, from Investing Daily suggests should apply to every estate plan.

  1. Have an estate plan.
  2. Know where all of your assets are.
  3. Estimate the debts to be paid out of your estate and plan how you want the debts handled.
  4. Choose reliable executors and trustees.
  5. Anticipate potential conflicts and try to minimize or resolve them.
  6. Keep in mind an estate plan is a balancing act between your family’s needs and your goals so it might not be perfect. 
  7. Be flexible.
  8. Talk to your family about your wishes.
  9. Do not distribute copies of your will it might make a will contest more likely. 
  10. Update your will.

See Bob Carlson, 10 Basic Rules of Every Estate Plan, Investing Daily, Apr. 17, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

April 18, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 15, 2014

Chances of Getting Audited Extremely Low


This year, the IRS will have the least amount of agents auditing returns since the 1980s.  This also affects taxpayer services, with millions of phone calls to the IRS going unanswered.

Last year, the IRS audited less than 1% of all returns, which is the lowest since 2005.  IRS Commissioner John Koskinen says this year “the numbers will go down.”  Of course, the more you make, the more likely you will be audited.  Only 0.9% of people making less than $200,000 were audited in 2013, compared with 10.9% of people making over $1 million. 

Koskinen believes the IRS can scrutinize more returns, and collect billions more in revenue, if it has more resources.  The president’s budget proposal predicts that the IRS can collect an additional $6 for every $1 increase in the agency’s enforcement budget.

See Steven Maimes, Chances of Getting Audited by IRS Lowest in Years, The Trust Advisor, Apr. 14, 2014.

April 15, 2014 in Income Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 8, 2014

IRA Tricks You May Be Missing


Here are 4 IRA “tricks” that can save you more money for retirement:

  1. Spousal contribution.  If at least one spouse is employed, you can contribute to your IRA and your spouse’s IRA.
  2. Double-up your contribution.  If you didn’t make a contribution last year, you have until April 15 to make a contribution for that year.
  3. Tax-free required distributions.  You can satisfy your required distribution by “gifting” from your IRA to a non-profit.  This allows you to avoid paying income tax.
  4. Catch-up!  If you’re 50 or older, you can contribute up to $1,000 more every year into your IRA with “catch-up” contributions.

See Rob Russell, 4 IRA Tricks You May Be Missing, Forbes, Apr. 5, 2014.

April 8, 2014 in Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)