Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Tuesday, September 16, 2014

Article on Frank Aragona Trust v. Commissioner

TrustDana M. Foley & William I. Sanderson recently published an article entitled, Frank Aragona Trust v. Commissioner: A Road Map to What Really Matters for Material Participation of Trusts, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the introduction of the article:

Just weeks before the first income tax returns were filed, reporting income subject to the new 3.8% net investment income tax (the “NII Tax”), the Tax Court issued the much anticipated decision in Frank Aragona Trust v. Commissioner, 142 T.C. No. 9 (Mar. 27, 2014) (“Aragona Trust”). This regular published opinion followed a trial before the Hon. Richard T. Morrison and was issued 15 months after the NII Tax came into effect under IRC § 1411.

September 16, 2014 in Articles, Estate Planning - Generally, Income Tax, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, September 15, 2014

Income Inequality Hinders State Revenue Growth


According to a report by Standard $ Poor’s, income inequality and the widening gap between the wealthiest Americans and the rest of the population has been matched by a decrease in state tax revenue.

Although income for the affluent has accelerated, it has yet to keep pace with inflation for most other people.  This trend can be devastating for states as the wealthy usually manage to shield much of their income taxes and tend to spend less of it than others, therefore limiting sales tax revenue. 

Because of this problem states face tensions over whether to raise taxes or cut spending to balance their budgets.  “Rising income inequality is not just a social issue . . . It presents a very significant set of challenges for the policymakers.”

Some states are now scrambling for new sources of revenue.  Pennsylvania has raised fees for vanity license plates and other auto expenses.  Colorado and Washington legalized recreational marijuana, in part on the promise that the proceeds would be taxed. 

See Associated Press, U.S. Wealth Gap Putting the Squeeze on State Revenue, AZ Central, Sept. 14, 2014.

September 15, 2014 in Current Affairs, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 10, 2014

The Changing Seasons of Financial Planning

Seasons of planning

Just as there is a spring, summer, fall and winter, there are also four financial seasons of life that include accumulation, preservation, distribution and succession.  Approaching your finances with these four seasons can help keep you on track to reaching you long-term goals. 

  1. Accumulation Season. This is the longest financial season and the time spent accumulating wealth sets the foundation for your entire life.  This is an important stage to set your financial goals and save and invest wisely. 
  2. Preservation Season.  During this time, it is important to protect the money you have worked hard to accumulate so you can depend on it during retirement.  This is the time to begin assessing your risk tolerance and perhaps become more conservative with investment dollars.
  3. Distribution Season. Income planning is critical during this season, as you determine how to make the most of your financial savings.  Consider your tax liabilities in retirement and the order from which you withdrawal from your retirement savings. 
  4. Succession Season. You must consider what will happen with the remainder of your life savings after you pass.  Without proper planning it can go to taxes and fees rather than heirs. 

See Brad Zucker, The Four Seasons of Financial Planning, Las Vegas Review Journal, Sept. 8, 2014.

September 10, 2014 in Estate Planning - Generally, Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Article on California Income Taxation of Trusts and Estates

Tax1Richard S. Kinyon (Shartsis Friese LLP), Kim Marois (Clement, Fitzpatrick & Kenworthy, Inc.) Sonja K. Johnson (Anderson Yazdi Hwang Minton + Horn LLP) recently published an article entitled, California Income Taxation of Trusts and Estates, 39 ACTEC Law Journal No. 1 & 2 (Spring/Fall 2013).  Provided below is an excerpt from the article:

California’s income taxation of trusts has unpleasantly surprised many trust fiduciaries and beneficiaries. Its unique method of taxation, based on the residence of the trust’s fiduciaries and beneficiaries (and regardless of the residence of the settlor), may affect trustees and beneficiaries (as well as their lawyers and other advisors) far beyond the California borders.

For example, consider an irrevocable, non-grantor trust1 established by an Illinois resident that is administered by two co-trustees, one of whom is an Illinois resident and the other of whom is a California resident. All beneficiaries of the trust also reside in Illinois. Despite the predominately non-California connections, and even if the Illinois cotrustee is more actively involved in the administration of the trust, half of the trust’s undistributed net income is currently taxable by California.

Alternatively, consider another irrevocable, non-grantor trust, this time with a New York settlor. In this case, the trust is administered in New York by a New York resident serving as the sole trustee. However, the trust’s sole beneficiary is a California resident with a vested (i.e., non-contingent) interest in the trust property. Despite the trust’s New York origin and administration, all of the trust’s undistributed net income is currently taxable by California.

September 10, 2014 in Articles, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, September 6, 2014

Conference on Tax, Estate Planning, and the Economy

CLE Photo

The Society of Trust and Estate Practitioners (STEP) is holding its 4th Annual Institute on Tax, Estate Planning and the Economy conference on January 22 – 24, 2015 at the Newport Beach Marriot Hotel & Spa in Newport Beach, California.  Provided below is a list of topics that will be covered:

  • Decanting an Irrevocable Trust: The Ultimate Do-Over
  • The Top Ten Reasons International Families Establish U.S Situs Trusts
  • Dealing with The Asian Client: Some Common Issues, Some Unique Issues, Some Tax Traps For Asians (and foreigners generally)
  • Incomplete Gift Non-Grantor Trusts: State and Federal Income Tax Considerations
  • Creative Uses of 529 Plans: The Educational Dynasty Trust
  • Estate Planning Considerations for Persons Having Connections with Latin America, with emphasis on Mexico, Argentina, Brazil, Colombia and Chile
  • Privacy In A Transparent World: FATCA, Son Of FATCA (the UK version), IGA's - Is FATCA Now Obsolete?
  • Following The Map of Foreign Asset Protection Trusts: A Country By Country Review Of The Best Offshore Asset Protection Legislation
  • Grantor Retained Annuity Trusts: Why they May Be More Relevant Than Ever
  • Family Limited Partnerships Including a Discussion Of The Step Transaction Doctrine, Qualifying for the Annual Exclusion and Defined Value Formula Gifts
  • Recent Developments In Income and Estate Tax Planning For Art
  • Special presentation by the Consul General of Luxembourg

September 6, 2014 in Conferences & CLE, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 2, 2014

IRS 2014-2015 Priority Guidance Plan Released

IRSThe 2014-2015 Priority Guidance Plan, which lists 317 priority projects for the IRS, was released last Tuesday. Among the many tax issues to be addressed through the projects, estate and trusts issues have made the lists. The plans provide the IRS with priorities for releasing guidance on tax issues, and are subject to change throughout the year so that the IRS can address new developments and tax concerns.

See Mike Godfrey, IRS Issues 2014-2015 Priority Guidance Plan, Tax News, Aug. 29, 2014.

September 2, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Sunday, August 31, 2014

Celebrity Tax Liens All Too Common

Vanessa williams

Fifty-one year old singer-actress Vanessa William owes the federal government $369,249 on her 2011 earnings for which the IRS filed a federal tax lien. 

Although this could be a misunderstanding between notices and her advisers, it is serious.  Tax liens can be about income, property, or even estate taxes; and they are all about getting paid. 

Despite their high earnings, celebrities often find themselves in this situation as their tax bills slip through the cracks.  Lindsay Lohan’s missed bills lead to a $94,000 tax lien.  IRS tax liens cover all your property even that acquired after the lien is imposed.  The courts use it to establish priority in bankruptcy proceedings and real estate sales. 

Liens last ten years, and generally release automatically if the IRS has not refilled them.  Yet, it is better to get them removed sooner rather than later.

See Robert W. Wood, Vanessa Williams Slapped With Six Figure Tax Lien, Forbes, Aug. 29, 2014.

August 31, 2014 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Saturday, August 30, 2014

Tax Management Portfolio on Estate Planning

Tax PlanningThe third edition of the Tax Management Portfolio, Estate Planning, has been published by William P. Streng, Esq. (Vinson & Elkins Professor of Law, University of Houston Law Center). This Portfolio provides helpful guidance for estate planning professionals. Provided below is a description of the Portfolio from Bloomberg BNA.

Estate Planning is designed as an authoritative and practical working tool for attorneys, accountants, and others involved in estate planning practice. The basic estate, gift, and trust planning concepts are presented in a descriptive and conveniently accessible form. Written by William P. Streng, Esq., Vinson & Elkins Professor of Law, University of Houston Law Center, and Consultant, Bracewell & Giuliani LLP, this Portfolio analyzes the development of an estate planning strategy; fundamentals of the federal transfer tax system and related federal income tax rules; lifetime donative asset transfers; gratuitous property transfers at death; generation-skipping transfers; special property transfer planning considerations (e.g., community property, life insurance, charitable transfers, closely held corporations); and post-mortem planning.

August 30, 2014 in Books, Books - For Practitioners, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 27, 2014

Ranking Assets: Which to Keep and Which to Cash Out First

Pro-ConIf low taxes for the estate and heirs is the goal, then it is important to consider the tax burdens that accompany various assets when prioritizing which to hold onto and which to cut ties from. Below is a ranking of nine assets from best to worst based on income tax consequences:

  1. Partnership Shares
  2. Artwork, Gold, and Other Collectables
  3. Highly Appreciated Stock
  4. Roth Accounts and Funds
  5. Moderately Appreciated Stock 
  6. IRA Accounts that are Taxable
  7. Bonds
  8. Cash
  9. Depreciated Securities

See William Baldwin, Estate Planning: A Ranking of Good Assets and Bad Assets, Forbes, Aug. 25, 2014.

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

August 27, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Friday, August 22, 2014

Estate Planning Under New York's Tax Laws

Money money money

Previously in New York, estates worth one million or less were exempt for New York tax.  Presently, the exemption is $2,062,500.  It increases to $3.125 million in 2015, $4,187,500 in 2016 and $5.250 million in 2017.  If you die leaving more than 105 percent of the prevailing New York exemption, your entire estate is subject to New York tax.  However, you would be no worse off than before the law changed, since the old $1 million exemption is manufactured into the new tax rates.

See Lynn Brenner, Estate Planning Under New York’s Estate Tax Exemption Rules, Newsday, Aug. 21, 2014. 

August 22, 2014 in Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)