Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Friday, December 19, 2014

The Importance of Consistent Estate Planning

Tax3An important lesson in coordinating all accounts and estate planning tools to match estate planning goals was illustrated in a recent Private Letter Ruling. A trust was created which named charities to receive donations from the trust. There was not enough funding for the charitable contributions, but the trust was named as a beneficiary of an IRA. A state court approved the taxpayer's petition to reform the trust so the funds from the IRA to the trust and then from the trust to the charities would be direct bequests from the IRA to the charities.

In  Private Letter Ruling (201438014), the court's grant of the reformation for the purpose of beneficial tax treatment was not allowed, and the IRA distribution to the Trust would be income. Additionally, the donations would not be deductible because gross income was not required under the trust terms to be used to make the donations.

See Joseph Tamburello, Coordinate Your IRA Beneficiary Designation With the Terms of Your Estate Plan, The National Law Review, Dec. 18, 2014.

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

December 19, 2014 in Estate Planning - Generally, Income Tax, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Tax Extenders for Charitable Contributions Passed

Tax CutAs I have previously discussed, a bill that would have made three charitable tax breaks permanent failed in the House last week. However, with the Senate passing a one-year tax extenders bill on Tuesday, the three charitable tax breaks are now extended through December 31, 2014. The three charitable extenders are for charitable IRA rollovers, Conservation Donations, and Food Inventory Gifts.

See Ashlea Ebeling, Charity Tax Breaks Extended Through 2014 Only, Forbes, Dec. 17, 2014.

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

December 19, 2014 in Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 16, 2014

Use of Trusts and Fraud Can Extend IRS Audit Period

TimerThe standard three year statute of limitations for IRS audits may be extend to six years and beyond in certain situations. Situations that can extend the audit process include not filing a return, and tax fraud or other criminal violations, which extends the limit to six years. Foreign accounts complicate the issue and using trusts to conceal assets can extend the limitations period by delaying the start date for the limitations to begin to run as the trust creates new acts of tax evasion.

See Robert W. Wood, IRS Can Audit For Three Years, Six . . . Or Forever, Forbes, Dec. 15, 2014.

December 16, 2014 in Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, December 15, 2014

Date-Of-Delivery Rules

Delivery

If you plan to make charitable donations before the end of the year, make sure you understand how “date-of-delivery” rules work. 

Over the next two weeks, donors will be able to claim gifts as deductions for their tax returns for 2014.  In order to qualify for these deductions, donors must comply with the IRS rules involving when the gift was contributed to the charity.  These rules vary, depending on the kind of property that is gifted and how it is transmitted. 

A gift’s date of delivery establishes the tax year in which the gift can be deducted; the value of the donation for assets that might fluctuate in value; and whether a gift is considered to be long-term or short-term property.  “Depending on the fund, it can take several weeks to effect the transfer.  For that reason, mutual-fund gifts should be planned well in advance.”

If you are making a gift by check, the date you mail the check is normally considered the date of delivery.  For instance, a check mailed on December 31 will qualify for a deduction on a person’s 2014 tax return, even if the charity does not receive the check until January.  Be aware, though, that this rule applies to U.S. postal mail and not to private couriers. 

Since date-of-delivery rules could have a big effect on your tax returns for 2014, fi you plan to give to charity, give quickly.

See Glenn Ruffenach, Year-End Charitable Giving: Get the Tax Timing Right, Market Watch, Dec. 15, 2014. 

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

December 15, 2014 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Questioning the Status Quo of Retirement Planning

RetirementA main focus of retirement planning is deferring taxes, but the results of a recent study raises questions on whether accelerating taxes on retirement accounts may sometimes be a beneficial move. The Vanguard study revealed that many 401(k) and IRA account holders are not using distributions from the accounts for income. Even though a Roth conversion can accelerate tax consequences, it can also have estate planning benefits for inheriting beneficiaries since the accounts do not have required minimum distributions.

See Mark Miller, When Paying Taxes on Retirement Accounts Makes Sense, Wealth Management, Dec. 12, 2014.

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

December 15, 2014 in Estate Planning - Generally, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, December 12, 2014

A Guide to Year-End Tax Planning

Tax planning 2

While protecting clients’ wealth should be a top priority all year long, it becomes especially important at year-end.  As deadlines approach, it is not too late to take measures that can reduce the taxes clients will owe on income and investment gains. 

Taxes can be the single biggest investment hurdle for clients, especially those with a high net worth.  Because of changes to the tax code in 2013, some clients are paying even more.  Furthermore, some states have also increased their tax rates.  Thus, it is important to take the right proactive measures, otherwise, clients could pay more than expected to the IRS come April 2015. 

An important step in the tax planning process is to help clients diversify between tax rates and different types of taxes, as well as diversify between taxable investments and tax-deferred vehicles.  To achieve “tax diversification,” effectively manage the timing of taxes, and generate more wealth, experts recognize the power of tax deferral.  With tax deferral, clients keep more of what they earn by deferring taxes during peak earning years, when they are taxed at a higher rate.  Consequently, clients accumulate more through tax-deferred compounded growth, and when they withdraw income in retirement, they are likely to be in a lower tax bracket and pay less in taxes. 

 See Laurence Greenberg, ABCs of Year-End Tax Planning, Bank Investment Consultant, Dec. 12, 2014.

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

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

Friday, December 5, 2014

Out of State Retirement

Retirement

During the cold winter months, retirees flock to the sun in states such as Florida and Arizona.  Despite year-round sunshine and golf, these are not the best states to spend the golden years. 

Surprisingly, the best destination for retirement is South Dakota according to a 2014 Bankrate report.  The report’s findings were derived by assessing the average number of sunny days, cost of living, residents’ sense of well-being, quality of health care, crime and humidity. 

“As this report correctly suggests, pre-retirees need to consider a lot more than snow days and tradition.  Different states have different tax laws and other regulations that can have a major impact on your retirement funds.  You need to be aware of these as you plan for where you want to live and how you want to live.”

If you are considering retiring in another state, it is important to familiarize yourself with the tax laws.  If you are married, know if you are moving to a community property state.  There are nine community property states and moving to one may affect your estate.  Finally, it is important to have a lawyer review your estate planning documents as statutes differ on the types of documents required and the powers bestowed upon each.  “For that, it’s essential to consider not only the cost of living but the state laws that affect your accumulated wealth and income.”

See Rodger Friedman, 3 Tips for Retiring Out of State, Investor Ideas, Dec. 3, 2014. 

December 5, 2014 in Elder Law, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, December 4, 2014

Boris Johnson Refuses to Pay U.S. Taxes

Boris Johnson

During a recent interview, the mayor of London, Boris Johnson, said he would refuse to pay his U.S. taxes, calling them “outrageous.”  Johnson was born a U.S. citizen in New York, and objects to the U.S. tax that could be due on the sale of his London home. 

Americans are expected to pay tax on their worldwide income, however, tax treaties obviate double taxation, requiring that one country yield to the other.  This system results in a “higher of” tax result, so that the taxpayer pays tax equal to whatever the tax would have been in the jurisdiction that taxed more.  Unfortunately, Johnson may have fallen into such a trap where he failed to consider whether similar tax-saving measures were available in the United States, and he only minimized taxes on the sale of his London home.

One way to avoid lots of U.S. tax is to minimize ties to the United States, the biggest way in the form of U.S. citizenship or residency.  According to reports, Johnson has considered relinquishing his citizenship but has yet to act. 

See Karen Yates and Shannon Smith Retzke, Better Not Pout—Like it or Not, U.S. Citizens Owe U.S. Taxes, Wealth Management, Dec. 2, 2014.

December 4, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

IRS Electronic Reading Room

BooksA quick reference list of tax guidance and information organized by categories is available via the IRS Electronic Reading Room. Resources available include:

  • Final, Temporary, and Proposed Regulations
  • Administrative Guidance Material
  • Private Letter Rulings
  • How to request a private letter ruling
  • And much more

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

December 4, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Resource Links | Permalink | Comments (0) | TrackBack (0)

Charitable Giving Tips From the IRS

Gift1The IRS has shared some reminders for deducting year-end charitable donations by both individuals and businesses. Here are some of the key points on recent tax treatment changes that the IRS wants taxpayers to be aware of this gifting season:

  • Donations of clothing and household items may be used but be need to be in at least good condition to be deducted, unless the deduction for an item is over $500 and accompanied by a qualified appraisal.
  • Taxpayers need to get the charity to give them a written acknowledgment and description of the items or amount for donations if the total donation is at or over $250.
  • A bank record is needed for all monetary donations. A communication from the charity in writing that includes the charity's name, the date, and how much was donated can be used instead of a bank record.
  • If a donation is through a payroll deduction a pay stub should be retained by the taxpayer.

See Theodore H. Waggner,  IRS 2014-110: Tips for Year-end Charitable Contributions, Wealth Strategies Journal, Dec. 1, 2014.

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

December 4, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)