Wills, Trusts & Estates Prof Blog

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

Wednesday, January 11, 2017

Article on Fiduciary Duties in 2017

Fiduciary 2016Gail 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. 


January 11, 2017 in Articles, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Professional Responsibility, Trusts | Permalink | Comments (0)

Monday, January 2, 2017

Article on Use of Charitable Class in Tax Law

Chariatble classEllen P. Aprill recently published an Article entitled, Charitable Class, Disaster Relief, and First Responders, 153 Tax Notes (2016). Provided below is an abstract of the Article:

The notion of charitable class bedevils tax law. The IRS has issued no precedential guidance regarding its scope or application. After the 9/11 terrorist attack, Congress enacted special provisions applicable only to victims of that disaster. In response to statements in the legislative history of those provisions, the IRS has changed several of its positions regarding the doctrine of charitable class, changes announced only in a publication on disaster relief. Nonetheless, disaster relief continues to raise difficult issues involving charitable class for Congress as well as the IRS. In the 15 years since 9/11, Congress has enacted special legislation to permit a small group of California firefighters and two New York police offers to be treated as satisfying the charitable class requirements.

This article reviews the use of charitable class in tax law, including its relationship to trust law, with particular attention on establishing new charitable purposes and classes. It then discusses disaster relief, both in the case of the 1995 Oklahoma City bombing and September 11, 2001 terrorist attack. This discussion includes consideration of the roles that crowdfunding and exemption based on lessening the burden of government play in addressing disasters. The next section of the article examines the special legislation that Congress has enacted for two small groups of first responders. The piece concludes by recommending that the IRS both undertake a study of charitable class in general and issue precedential guidance regarding charitable class in the context of disaster relief. It also urges Congress to consider holding hearings and enacting special legislation for first responders.


January 2, 2017 in Articles, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Monday, December 19, 2016

Article on Advising the Ultra-High-Net-Worth Clients

Wealth advisorChristopher P. Woehrle recently published an Article entitled, Capital Without Borders: An Insider’s Research into the Advisors of the World’s Wealthy, Tr. & Est. (Dec. 2016). Provided below is a summary of the Article:

In Capital Without Borders: Wealth Managers and the One Percent, Dr. Brooke Harrington, associate professor of Economic Sociology at Copenhagen Business School, applies the principles of ethnography to learn the practice of wealth management and understand the outsized role of advisors in representing their clients. Her book is very timely, as the release of the Panama Papers spotlighted the issue of offshore tax havens, while the number of U.S. citizens renouncing their tax citizenship continues to climb. The self-perpetuating nature of the wealthy avoiding the payment of income and transfer taxes exacerbates global income and wealth inequality. 

I’ll highlight the major findings from Dr. Harrington’s interviews with wealth managers, whose role she sees as the defenders of ultra-high-net-worth (UHNW) individuals and their families ($30 million minimum in investable assets) through legal and financial expertise. I’ll also examine the workhorse techniques of asset protection and the positioning of philanthropy. I’ll conclude with the policy implications of the owners of capital increasingly free of any tax home. 


December 19, 2016 in Articles, Estate Planning - Generally, Generation-Skipping Transfer Tax, Income Tax | Permalink | Comments (0)

Wednesday, December 14, 2016

Completed Gifts in an Irrevocable Trust

Completed giftsA recent Private Letter Ruling details the IRS conclusions regarding distributions from an irrevocable trust. A grantor had created an irrevocable non-grantor trust for the benefit of him, his spouse, his mother, and his issue with a distribution committee. The trust terms specified that all gifts to the trust were not completed gifts and any trust assets would be included in the grantor’s gross estate. One of the grantor’s inquiries was if he is considered the owner of the trust, which portions of income, deductions, and credits should he include in his taxable income during the time of the distribution committee’s service. The IRS concluded that the grantor was not the owner of the trust so long as the distribution committee served. In another ruling, the IRS concluded that two gifts made to the trust were not complete because the grantor retained some power over the trust’s distributions. Similarly, the IRS ruled that any distribution by a committee member pursuant to their powers would not be considered gifts subject to the federal gift tax but rather gifts by the grantor.  

See Dawn S. Markowitz, What Constitutes Completed Gifts?, Wealth Management, December 13, 2016. 

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


December 14, 2016 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

The Effect of Trump's Tax Proposals on High Net Worth Reitrees

High net worth retireesThe recent presidential election marks a good opportunity for retirees to review their long-term financial plans and implement new strategies, especially with Trump’s tax proposals. If you are a high net worth retiree, there are things you can do to protect yourself. With the proposed reduction in income tax brackets, it is important for these retirees to plan accordingly with discretionary income sources. Additionally, if Trump’s modification for tax deductions takes effect, retirees should reconsider their current deductions, specifically in the areas of mortgages and charitable donations. High net worth retirees should also understand that even if the estate tax is repealed, estate planning is still a necessity. Lastly, eliminating the basis “step up” will not allow retirees to avoid capital gains taxes upon death, so you should consider reducing your investment risk. 

See Jeff Fosselman, What the Trump Tax Proposals Mean for High Net Worth Retirees, Forbes, December 12, 2016. 

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


December 14, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Thursday, December 8, 2016

The Tax Change Agenda

Trump tax planWith Donald Trump and a Republican Congress, it is likely we will see lower tax rates and a broader taxable income base. Republicans will, however, need to compromise on some core objectives. This Article provides the “Potential Tax Change Timeline” to some expected bills, debates, and legislation. Additionally, there is a “ Tax Change Watchlist” organized into three categories—individual income tax, corporate and pass-through income tax, and transfer tax—giving insight into the major changes detailed in Trump’s proposals.

See J.P. Morgan Advice Lab, The Tax Change Agenda: What’s Been Proposed—and Our Insights into What That May Mean for You, J.P. Morgan Private Bank (2016).

December 8, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation | Permalink | Comments (0)

Friday, December 2, 2016

What Happens When Your Husband Hides His $400 Million Fortune?

Hiding moneySarah Pursglove decided to take a deeper look into her husband’s finances when the Finnish entrepreneur left her. Robert Oesterlund swore in court that his fortune only totaled a few million dollars, but Pursglove could think of several family purchases that cost above and beyond that amount. She flew to the Bahamas to figure out what her husband was really worth. There she found an accounting statement that claimed Oesterlund was worth at least $300 million. As she packed her bags for the flight back home, her family’s fortune immediately began disappearing into various shell companies, bank accounts, and trusts under a worldwide financial system catering to the ultra rich. The system effectively offshores wealth and makes the richest people appear to own very little.

Over the next two years, Pursglove would rely on her wealth squad to untangle the defenses of the offshore financial world. It all started when Oesterlund created his businesses and was subsequently looking to avoid costly taxes. Eventually, he set up a Cook trust, suggested by his corporate counsel, who assured him he would be “untouchable.” As Pursglove’s lawyers began to figure out the scheme her husband was surmounting, they filed court documents for a divorce and to impose a sweeping asset injunction, which would prohibit Oesterlund from selling, merging, or borrowing against any of his assets and additional offshoring. The corporate fraud lawsuit proceeded in Florida, where the family’s companies were being run. It was eventually discovered that Oesterlund was using a Bahamas-based company to transfer all his assets and avoid all United States tax liability—a tactic referred to as “transfer pricing.” Pursglove’s attorneys claimed that Oesterlund began to shield assets from his wife as the divorce loomed near. Shortly after a judge ruled that Pursglove could see thousands of her husband’s documents, both sides’ lawyers met and discussed the possibility of Oesterlund going on the run if he had to fork the documents over. Consequently, this brought things to a head. Oesterlund would have to expose himself or threaten his fortune. Oesterlund’s one-time allies were now becoming his enemies to avoid fighting the greater good—the system. The wall of secrecy around Oesterlund’s accounts began to crumble. The case still remains open and the outcome is unknown, but it begs the question: is there justice in wealth battling wealth?

See Nicholas Confessore, How to Hide $400 Million, N.Y. Times, November 30, 2016.

December 2, 2016 in Current Events, Estate Administration, Estate Planning - Generally, Income Tax, New Cases, Professional Responsibility, Trusts | Permalink | Comments (0)

Thursday, November 17, 2016

Tax Tasks to Complete Before the End of 2016 in Light of Trump's Election

Trump tax planIn light of Donald Trump’s election and his pre-election tax platform, you should consider several tax planning strategies as part of your year-end planning. McManus & Associates have listed the ten items below to complete before the end of 2016.

  1. Accelerate your income tax deductions.
  2. Postpone receipt of income.
  3. Do not buy any capital assets this year.
  4. Make gifts to charities and family foundations with appreciated assets.
  5. Harvest losses to offset capital gains.
  6. Establish and fund qualified plans.
  7. Identify assets and amounts to make proper GRAT distributions before April 17, 2017.
  8. Make annual exclusion gifts to chosen loved ones of $28,000 (per married couple).
  9. Make distributions of income from trust accounts and estate accounts to lower the income tax liability.
  10. Host annual meetings for your family office, partnerships and foundations.

 See Top 10 Tax Planning Tasks to Complete Before the End of 2016 in Light of President-Elect Trump’s Proposals, McManus & Associates, November 16, 2016.

Special thanks to Lauren DuBois (Media Inquiries, McManus & Associates) for bringing this article to my attention.  

November 17, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Resource Links | Permalink | Comments (0)

Sunday, November 13, 2016

How Trump's Tax Proposals May Encourage Dynastic Wealth

Trump taxesIf our new President-elect follows through with his campaign promises, wealthy families may find it easier to accumulate dynastic levels of wealth. A repeal of the estate tax will break down the guard against generational wealth, but Trump wants to still impose a tax on capital gains above $10 million upon the sale of assets. This plan, however, would allow rich inheritors to never pay capital gains if they did not sell their assets, unlike modest inheritors who normally sell or spend what they get. Additionally, as for charitable deductions, contributions of appreciated assets into the decedent or decedent’s relative’s private charity will be disallowed with a cap of $200,000 per couple, limiting the incentive for the rich to be charitable. Further, some speculate that we could be saying goodbye to the gift tax and generation-skipping tax as well, which would have a greater economic impact than the repeal of the estate tax. Trump’s tax proposals will contribute to further concentrations of wealth, carving out the perfect resting spot for dynastic wealth.

 See Paul Sullivan, Trump’s Changes to the Tax Codes May Encourage Dynastic Wealth, N.Y. Times, November 11, 2016.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) & Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

November 13, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Income Tax | Permalink | Comments (0)

Friday, November 11, 2016

What Trump's Election Means for Your Taxes

Trump1During his campaign, President Trump promised big policy changes in many areas, including taxes. For individuals, he proposed fewer tax brackets and lower top rates. With this, Trump would eliminate head of household filing status, which will provide favorable rate brackets. Additionally, Trump wants to abolish the estate tax and subject accrued, outstanding capital gains at death to capital gains tax. Further, he plans to slash the corporate tax rate, presenting a good opportunity for change to a broken system. How soon will this all happen? Any tax reduction is going to face heavy opposition for the Democrats, but a good strategy is to pass things early on in a new presidency, so look for tax changes as early as the beginning of next year.

See Bill Bischoff, What Trump’s Victory Means for You and Your Taxes, Market Watch, November 10, 2016.

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

November 11, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)