Wills, Trusts & Estates Prof Blog

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

Friday, June 24, 2016

Donor-Advised Funds Are Costing American Charities

CharitiesThe United States relies heavily on charities, and in return, those that donate receive a generous tax break on the income donated. Experts argue that this charitable relationship is at risk due to a collective, managing, and distributive fund—donor-advised fund—that is obstructing the stream of money to those who need it. Instead of the money going directly to the charity of choice, it goes to a financial firm that acts as a middleman. These funds are considered legal charities that can distribute money over a long period of time, keeping it out of the hands of those charities that sincerely rely on the funds. As donor-advised funds are on the rise, an estimated $15 billion could be delayed to American charities.

See Ana Swanson, Wall Street Is Sitting on Billions Meant for American Charities, Washington Post, June 21, 2016.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

June 24, 2016 in Estate Administration, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Saturday, June 18, 2016

How To Benefit from Sharing Your Art Collection in an Estate Plan

Art collectionThose with art collections would most enjoy their collection being appreciated for years and years after they are gone. One way to make this happen is to give a “fractional interest” in the collection to a charity or museum. By donating the art for 50% of the year while you enjoy it in the other half, you can claim major tax deductions. The catch? The IRS demands that the specified shared artwork be completely gifted no later than ten years after the original agreement is put into place. If you decide not to gift after ten years, the original tax deduction becomes income, which will be taxed accordingly. This method will allow you to have your gift and keep it, too!

See How To Share an Art Collection in an Estate Plan, Wealth Management, June 7, 2016.

June 18, 2016 in Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Friday, June 17, 2016

Is a New Estate Planning Tool Genius or Too Risky?

BDITA new technique—the beneficiary defective inheritor’s trust (BDIT)—in estate planning has the potential to turn thousands of dollars into millions. A relative would set up the trust with an amount of cash and give the beneficiary, the child, immediate withdrawal power, and when the right to withdraw lapses, the child would then become the exclusive grantor of the entire trust. This would allow young entrepreneurs to “defectively” modify the withdrawal power and continue to withdraw limited funds for HEMS. For income tax purposes this technique would seem to work, but it comes with a lot of risk. Read the article to find out more about BDIT’s pros and cons.

See Allyson Versprille, Estate Planning Tool: Either Genius or Too Good to Be True, Bloomberg BNA, June 15, 2016.

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

June 17, 2016 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Tuesday, June 7, 2016

BDIT Powerful Estate Planning Strategy

BDITDick Oshins recently published a Comment entitled, Dick Oshins & the PLR 200949012 "Myth" - Now You See It, Now You Don't, LISI Estate Planning Newsletter #2420 (May 31, 2016). Provided below is a summary of the Comment:

The Beneficiary Defective Inheritor’s Trust (‘BDIT’) is a very powerful estate tax planning strategy.  It is designed to follow the philosophy - 'control it; don’t own it.'  Because the BDIT provides controls and beneficial enjoyment similar to outright ownership, plus shelter from potential claimants, the IRS transfer tax system and certain income taxes, many planners view the BDIT as the quintessential estate planning technique. 

A BDIT is a trust created by a person other than the client. It is the creator/donor’s dynasty trust for transfer tax and creditor protection purposes. All gifts to the trust will be subject to the beneficiary’s lapsing Crummey power of withdrawal and the trust is not a grantor trust as to the donor.  As a result, the beneficiary will be the deemed owner for income tax purposes under IRC § 678. 

The income tax consequences mentioned in the previous paragraph reflect the constant position of the IRS, although some pundits have said otherwise.  The premise of these commentators is that because the gift will fully lapse, there must be a second power (‘HEMS’) that doesn’t lapse in order to secure and maintain beneficiary owned status.  They cite PLR 200949012 (the ‘2009’ PLR) as support for that proposition.   

The ‘facts’ in the PLR mention that the beneficiary will have a HEMS power that will not lapse.  Significantly, however, neither the IRS’s ‘legal analysis’ nor the ‘ruling conclusions’ ever address the HEMS power.  Query – How can the 2009 PLR be cited as authority for a position that it never discusses?

June 7, 2016 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (1)

Thursday, June 2, 2016

Article on Lessons from the Panama Papers

Panama papersLawrence J. Trautman recently published an Article entitled, Following the Money: Lessons from the Panama Papers, Part 1: Tip of the Iceberg, (2016). Provided below is an abstract of the Article:

        Widely known as the “Panama Papers,” the world’s largest whistleblower case to date consists of 11.5 million documents and involves a year-long effort by the International Consortium of Investigative Journalists to expose a global pattern of crime and corruption where millions of documents capture heads of state, criminals and celebrities using secret hideaways in tax havens. Involving the scrutiny by over 400 journalists worldwide, these documents reveal the offshore holdings of at least several hundred politicians and public officials, including the prime ministers of Iceland and Pakistan, the president of Ukraine, and the King of Saudi Arabia. More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories.

        Since these disclosures became public, national security implications already include abrupt regime change, and probable future political instability. It appears likely that important revelations obtained from these data will continue to be forthcoming for years to come. Presented here is Part 1 of what may ultimately constitute numerous-installment coverage of this important inquiry into the illicit wealth derived from bribery, corruption, and tax evasion. This article proceeds as follows. First, disclosures regarding the treasure trove of documents from the Panama-based law firm, Mossack Fonseca are reviewed. Second, is a discussion of the impact and cost of bribery and corruption to the global community. Third, I define and briefly explore issues surrounding “tax evasion.” Fourth, the impact of social media and technological change on transparency is discussed. Next, a few thoughts about implications for future research are offered.

June 2, 2016 in Articles, Current Events, Income Tax, Technology | Permalink | Comments (0)

Wednesday, June 1, 2016

Book on Guide to Qualified Retirement Plan Benefits

Retirement book Louis A. Mezzullo recently published a book entitled, An Estate Planner’s Guide to Qualified Retirement Plan Benefits, Fifth Edition (ABA Book Publishing). Provided below is a summary of the book:

This ABA bestseller has helped thousands of estate planners understand the complex rules and regulations governing qualified retirement plan distributions and IRAs. Now newly updated, An Estate Planner’s Guide to Qualified Retirement Benefits provides expert and current guidance for structuring benefits from qualified retirement plans and IRAs, consistently relating key distribution issues to current estate planning practice. Topics covered include:

  • The different types of qualified plans and the tax and non-tax rules relating to them
  • The forms of distribution and the situations in which they need to be considered
  • Penalty taxes
  • Distribution requirements and how to calculate them
  • Income taxation and handling rollovers
  • Transfer taxes
  • Spousal rights, QDROs, and community property considerations
  • Estate and trust administration issues
  • Practical planning strategies to avoid penalty and excise taxes on distributions while incurring the lowest income tax

June 1, 2016 in Books, Books - For Practitioners, Estate Planning - Generally, Generation-Skipping Transfer Tax, Income Tax | Permalink | Comments (0)

Saturday, May 28, 2016

Study Shows that the Rich Are Not Moving to Avoid Taxes

MillionaireAre millionaires moving across the country to benefit from tax breaks? A study based on thirteen years of tax data shows that this assumption is principally untrue. Oftentimes, millionaires are moving for reasons that have nothing to do with taxes. They usually have community roots that have promoted their successfulness, which makes it hard to uproot.

            Florida is only one of seven states with no income tax. Most millionaire tax flight, however, travels to the Sunshine State. If the study removed Florida from the list of states drawing tax-avoiding millionaires, tax migration would be virtually nonexistent. But, honestly, relaxing under a palm tree facing the Caribbean Sea makes tax avoidance pretty tempting for just about anyone with millions of dollars to spend.

See Higher Taxes Don’t Scare Millionaires into Fleeing Their Homes After All, Private Wealth, May 26, 2016.

May 28, 2016 in Estate Tax, Income Tax | Permalink | Comments (0)

Friday, May 20, 2016

Article on Regulations Affecting the Deductibility of Investment Advisory Expenses

Math workDomingo P. Such, III & Tina D. Milligan recently published an article entitled, Understanding the Regulations Affecting the Deductibility of Investment Advisory Expenses by Individuals, Estates and Non-Grantor Trusts, Real Property, Trust and Estate Law Journal, Winter (2016). Provided below is their synopsis of the article:

            This Article addresses the new 2015 federal income tax rules governing the deductibility of investment advisory expenses and the confusion surrounding them. Specifically, the Article provides the context and impact of these new regulations, clarifies the current classification of investment advisory expenses, outlines methodologies for fiduciaries in unbundling fiduciary and investment advisory fees, and explains the limitations under current law. The Article also addresses the confusion surrounding the new rules for corporate fiduciaries, which require the “unbundling” of investment advisory fees when comingled with fiduciary fees using “any reasonable method.” The Article concludes that taxpayers should consult with their financial advisors and tax professionals to minimize the impact of deductibility limitations.

May 20, 2016 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Sunday, May 15, 2016

Article On Tax Basis In Estate Planning

Pen and PaperPaul L. Caron (Pepperdine University School of Law) & Jay A. Soled (Professor, Rutgers University) recently published an article entitled, New Prominence of Tax Basis in Estate Planning, Tax Notes, Vol. 150, p. 1569 (2016). Provided below is an abstract of the article:

In this article, Caron and Soled discuss how section 1014(b)(6) offers a bridge for taxpayers to maximize the tax basis they have in their assets. Whether Congress should retain this anachronistic provision is an open issue. The authors explain the historical background of section 1014(b)(6), demonstrate the potential income tax savings from applying it, and outline several planning strategies to achieve those savings.

May 15, 2016 in Articles, Income Tax | Permalink | Comments (0)

Wednesday, May 11, 2016

United States Cracking Down On Using LLCs To Disguise Foreign Beneficial Owners

CharityThe United States is attempting to crack down on the use of LLCs to disguise foreign beneficial owners.  “The United States Department of Treasury issued proposed regulations that, if promulgated, would impose new disclosure obligations on domestic disregarded entities wholly owned by foreign persons (i.e., single-member limited liability companies).”  Entities that are affected by the new regulations will be required to report the identity of the beneficial owner to the IRS every year.  The purpose of the new regulation will be to strengthen civil and criminal tax enforcement and to assist other nations in obtaining information about their own taxpayers.  “Under the proposed regulations, any domestic disregarded entity owned by a foreign person would be subject to the provisions of Section 6038A of the Internal Revenue Code, which currently imposes annual reporting, recordkeeping, and other compliance requirements on certain foreign owned US corporations.”

See Kathy Keneally, Ellis L. Reemer, Michael A. Silva, Frank L. Jackson, Michael J. Scarduzio, and Ryan J. Coyle, US targets the use of LLCs to disguise foreign beneficial owners, DLA Piper, May 10, 2016.

May 11, 2016 in Current Affairs, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)