Wills, Trusts & Estates Prof Blog

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

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Wednesday, May 27, 2015

In Modern Estate Planning Basis Plays Important Role

ScaleThe American Taxpayer Relief Act of 2012 raised the federal estate tax exemption to $5 million for each individual.  This amount is adjusted to inflation which means an individual can transfer up to $5,430,000 before being effected by the estate tax.  The change to estate tax law has shifted the focus of many estate planners from “estate tax” planning to “basis” planning.

“Basis” is an income tax concept which the IRS uses to calculate the tax a person owes after selling an asset.  Individuals and couples should consider the fair market value of their assets before deciding on whether to give the asset away as a gift or transfer it at death.   Estate Planners should be prudent about considering basis in order to reduce the income tax liability that a client will face.

See Virginia Carter & Zachary Lamb, Ward and Smith, P.A. Modern estate planning – It’s all about that basis, May 27, 2015.

May 27, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Income Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Monday, May 25, 2015

What Are The Best Countries To Live in For Different Financial Needs?

TransportFor individuals with different financial needs there are advantages to living in certain
countries. When it comes to certain unique types of financial situations here are the 6 best places to live in:

  1. Best Pension System: Denmark.  According to the Mercer Global Pension Index (MGPI) Denmark has the best pension system in the world. 
  2. Cheapest Place To Live: Saudi Arabia.  The Economists Intelligence Unit (EIU) has released a cost-of-living survey listing Riyadh and Jeddah as being the two cheapest cities in the world to live in.
  3. Highest Disposable Income: United States.  According to an OECD study the United States ranks highest in the amount of money each household spends on goods and services.
  4. Lowest Income Tax: Dubai. The best country in the world to live in to avoid income taxes is Dubai, where people get to keep 100% of their income.
  5. Cheapest childcare: Australia.  According to a recent OECD study on childcare costs Australia has the most affordable child care options for parents.
  6. Lowest Death Costs: Australia and New Zealand.  The inheritance tax was abolished in Australia and New Zealand a number of years ago making those two nations the best countries to live in to avoid such taxes.

See Louise McBride, Best places for tax- live in Dubai, die in Australia, Independent, May 25, 2015. 

Special thanks to Jim Hillhouse for bringing this article to my attention.

 

May 25, 2015 in Current Affairs, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Understanding the New Qualified Longevity Annuity Contract Regulations

Understand-and-implement71-crop-600x338It is important for retirees to know about how to use the new regulations on Qualified Longevity Annuity Contracts (QLACs).  These contracts are essentially “wrappers” that house deferred income annuities (DIAs).  This can permit individuals to delay payments to fill potential income needs that might come up later in life.  There are several income options that a person can choose from, QLACs offer clients more flexibility than what a traditional retirement plan might have given. 

In order to be successful a QLAC should take a holistic approach which factors in the client’s individual life needs.  It is good to consult with a proper tax advisor to work out a plan because a QLAC is “not a transactional sale, but more of a planning-based sale.”  Be creative when working with a client, create a plan that best suits their individual financial needs. 

See Anthony Tocco, Understanding and implementing QLACs in a retirement plan, Life Health Pro, May 22, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

May 25, 2015 in Current Affairs, Elder Law, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, May 24, 2015

Donor-Advised Funds Will Face More Congressional Scrutiny

Donor-advised-fundsMembers of congress from both parties are calling for increased scrutiny of Donor-Advised Funds (DAFs) because of the way these funds are used as a tax avoidance technique.  DAFs have been growing dramatically in recent years, there are now at least 217,000 DAFs representing a 34% increase in the last seven years. 

A DAF is an account set up by a donor and placed under the control of an IRS approved charity.  The charity makes payments from the account to legally recognized charitable beneficiaries who were chosen by the donor.  Donors can also receive a charitable tax deduction for assets put into a DAF while postponing the decision on which charity to support.  Another benefit of a DAF is privacy that a donor gets that would not be available if a donation was made directly to a charitable foundation.  There are many lawmakers who would like to change things because DAFs are costing the treasury a lot of money in lost tax revenue. 

See Diana Britton, The New Reality In Donor-Advised Funds, Wealth Management, January 26, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

May 24, 2015 in Current Affairs, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, May 22, 2015

Choate's Bible Can Now Be Accessed Electronically In The Cloud

Choate bibleNatalie Choate’s book the Life and Death Planning for Retirement Benefits is considered to be the “bible” on the topic of Qualified Retirement Plans (QRP’s), and Individual Retirement Accounts (IRA’s).  The book has sold over 50,000 copies and has received excellent reviews on Amazon.  The book is read by lawyers, financial planners, CFPs, Accountants, IRA advisors, and many other professionals.  Choate’s book can now also be accessed electronically in the Cloud.  The Cloud version includes many new features like automatic updates, more content, and links to other information. 

The United States is estimated to have about $28 billion invested in QRP’s and IRA’s.  One major benefit of these types of retirement plans is that people can use them as tax avoidance technique.  The best way to be efficient about using these plans is to take distributions slowly to delay taxation of income. 

See Jonathan Blattmachr, Good News for Advisors of IRA and Qualified Retirement Plans: Choate’s Bible Now Is Available in the Cloud, TrustAdvisor, May 19, 2015. 

Special thanks to Jim Hillhouse for bringing this article to my attention.

May 22, 2015 in Books, Books - For Practitioners, Elder Law, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 19, 2015

How To Structure Zero Basis Stock Sales For Tax Savings

Trust AltStock with a zero basis can be a tax headache for those about to retire that seek to divest of their assets in order to fund a retirement plan that provides income and liquidity. By using a couple of different charitable remainder unitrust to take the bulk of the stock sale income the estate planner may offset the capital gains on the portion that was retained for liquidity purposes. This article provides step by step instructions on how to format this tax savings strategy using a hypothetical based on a $3.5 million dollar sale of stock.

See Three-Way Split SaleCharitable Planning, May 14, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

May 19, 2015 in Estate Administration, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, May 18, 2015

Trusts Face Problems When Dealing With State Tax Laws

State taxesWhen setting up a Trust it is important to have knowledge of State tax laws because each state has its own unique set of rules.  If a Trust investor is not careful they could end up paying a tax in multiple different states.  “There are two types of trusts for tax purposes, grantor and nongrantor.” In a grantor trust the income-tax items are passed through the trust creator.  With a non grantor trust the income that is accumulated is taxed at the trust level.  The overlapping and constantly changing rules in different states can get complex.  State governments that want more revenue and wealthy families that want to reduce their tax liabilities play a game of cat and mouse trying to stay ahead of each other. 

See Amy Feldman, Can Another State Tax Your Trust?, Barron’s, May 16, 2015. 

Special thanks to Jim Hillhouse for bringing this article to my attention.

 

May 18, 2015 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, May 15, 2015

IRS Allows Generation Skipping Trust To Use Settlement Agreement Without Losing Status

IRS LogoIn a series of private letter rulings, the IRS has establishes that using a family settlement agreement will not strip a generation skipping trust of it's tax protection. In this case, an irrevocable trust set up to provided for a spouse, children, and grand-children was subject to litigation by younger beneficiaries looking for an immediate payout. A court sponsored agreement was entered into which required a LLC controlled by the trust to make payments per the arrangement. The IRS also ruled on whether the distributions to the beneficiaries would be included in income.
 
See Dawn S. Markowitz, Settlement Agreement Distributions Retain GST Tax-Exempt Status, Wealth Management, May 12, 2015.
 
Special thanks to Jim Hillhouse for bringing this article to my attention.

May 15, 2015 in Current Events, Generation-Skipping Transfer Tax, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 13, 2015

Lending Money Without Tax Blows

Lending moneyWhile loaning money to a family member is a nice sentiment, it is important to ensure that the loan is made the tax-smart way.  Below are considerations to keep in mind:

  • Charge IRS Interest Rate.  If you do not charge interest when loaning money, you could face unfavorable tax rules.  Yet, these can be avoided if you charge an interest rate that equals the IRS-approved applicable federal rate (AFR). 
  • Put a Strategy in Action.  For example, if you want to lend $50,000 to your daughter so that she may buy a home, you could make a nine-year term loan with balloon repayment at the first end and charge the mid-term AFR, which is currently only 1.53%.  Your daughter can pay that same low rate for the entire nine years.  If you rather make a 20-year loan, just charge interest equal to the long-term AFR, which is currently only 2.30%.  You must include the interest income on your tax return and your daughter can deduct the interest as home mortgage as long as you secure the loan with her home.
  • Devil is in the Details.  Put the loan in writing to ensure the IRS and the borrower will respect the deal as a loan instead of a gift.  This shows you are serious about getting your money back.

See Bill Bischoff, How to Lend Money to a Relative Without Getting Whacked by the IRS, Market Watch, May 12, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

May 13, 2015 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Political Battle On Horizon Over Like Kind Exchanges

Maurice_de_vlaminck_la_voile_blanche_a_bougival_d5868983hArt and collectables might not be subject to Section 1031 like kind exchanges anymore if the White House gets its was in its new budget proposal. The administration seeks to have tax exempt status taken away and have any gain from an exchange taxed immediately. This article asserts that the change would penalize American art dealers compared to their international counterparts who operate under more favorable rules. In addition, there is merely tax deferral status in allowing art based like kind exchanges, rather than any tax exemption or avoidance, since the piece will eventually be sold and have its gain taxed. This is an issue worthy of keeping an eye on for some clients as it moves its way through the budget process.

See Diana Wierbicki, The President's Attack on Like-Kind Exchanges, Wealth Management, May 6, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.

 

May 13, 2015 in Current Affairs, Current Events, Income Tax | Permalink | Comments (0) | TrackBack (0)