Wills, Trusts & Estates Prof Blog

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

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)

Wednesday, November 9, 2016

What Do Warren Buffet's Tax Returns Really Say?

BuffetIn Donald Trump’s second presidential debate, he claimed that Warren Buffett, similar to him, deducted net operating losse. In response, Buffett released a summary of his 2015 federal tax return. Whether his intention was to prove a point against Trump, his returns show that he astutely minimized his federal income, estate, and gift tax burdens. Buffet made sizable contributions ($2.8 billion) to the Gates Foundation, which avoids the payment to public services that, in Buffet’s words, helped create that appreciation. Additionally, his contribution avoids estate and gift taxes. The ultimate purpose of releasing his tax returns is seemingly contradictory to his position.

See Edward A. Zelinsky, Warren Buffet’s Taxes: The More Complicated Narrative, OUPblog, November 7, 2016.

November 9, 2016 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Tuesday, November 8, 2016

Trust's Charitable Deduction Disallowed for Lack of Charitable Intent

Income tax returnThe income earned in a trust is taxed, and deductions are allowed for certain distributions. For example, a testamentary trust was created under a will that required monthly annuity payments to be made to various beneficiaries. During the distribution years, the trustees set aside funds for charitable purposes, taking deductions for the funds on subsequent income tax returns. In 2009, however, the IRS disallowed the charitable deductions, claiming that none of the contributions were made pursuant to the terms of the governing trust instrument under IRC § 642(c)(1). Ultimately, the tax court refused to read any intent into the document allowing these charitable funds to be set aside for deduction purposes.

See Andrew M. Nerney & Stefania Bartlett, Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent, Wealth Management, November 7, 2016.

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

November 8, 2016 in Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Saturday, October 29, 2016

The Tax Consequences of Your Nobel Prize

Nobel prizeBefore accepting your Nobel prize, remember that the IRS § 61(a) requires that all income be included in gross income. Since the Tax Reform Act of 1986, an award for charitable, religious, scientific, educational, artistic, literary, or civic achievement can be excluded from gross income “only if the recipient assigns it to a governmental unit or charity entitled to receive deductible charitable contributions.” Profits assigned to the award recipient are not considered deductible charitable contributions. Accordingly, an award recipient can either accept the prize and pay the income tax, accept the prize and grant it to charity, or assign the award to charity immediately before benefiting from it. 

See Conrad Teitell, A Noble Use for the Nobel Prize, Wealth Management, October 25, 2016. 


October 29, 2016 in Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Changing the Property Ownership of Assets Inside a Revocable Trust

Trust coownerA living trust serves to to transfer ownership of property at the time of the owner’s death. When leaving a piece of property in this type of trust for a beneficiary, the item will not need to go through probate, passing straight to the beneficiary. As far as income and estate taxes on the property within the trust, if the property is to be sold at the time of death or up to one year after, there is no federal income taxes. Additionally, if the estate is under $5 million, there will be no estate taxes to pay. As the trustee (oftentimes the creator of the trust) gets older, they can have a successor trustee in place to serve the trust if the creator becomes incapatictated. 

See Lacey Kessler, Think Twiece About Changing a Revocable Trust to List Your Child as Co-Owner of a Home, Trust Advisor, October 28, 2016. 

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


October 29, 2016 in Disability Planning - Health Care, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, Non-Probate Assets, Trusts | Permalink | Comments (0)

Sunday, October 23, 2016

Taxable Inherited IRA Distributions

Inherited iraRecently, the IRS released an information letter, explaining the tax treatment on two inherited retirement accounts. The beneficiary requested that all distributions from both IRAs be rolled over in order to avoid taxable income. Unfortunately, the IRS, under IRC § 402(b)(2), treats all amounts distributed from a retirement plan as taxable income. However, there is an exception—under § 402(c), distributions from a retirement plan that roll over into another plan, such as a direct trustee-to-trustee transfer, are treated as a direct rollover contribution. Although, if this distribution does not go to a spouse, then it is not eligible for rollover. 

See Dawn S. Markowitz, Inherited IRA Distributions Treated as Taxable, Wealth Management, October 20, 2016. 


October 23, 2016 in Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Wednesday, October 19, 2016

Watch Out for the Tax Bomb in Retirement

Tax bombIf you set aside portions of your earnings in a 401(k) or IRA, then you will have to pay taxes upon distribution. Additionally, if your securities have appreciated, you will owe taxes on them as well. At the time of contribution, you placed tax-deferred dollars into these assets, so there can be a tax shock after previously not considering the taxable savings. You can, however, maximize after-tax income, further defusing the tax bomb. There is not one easy plan that allows a retiree to maximize their after-tax income, but there are efficient solutions to converting your savings into income. For example, fixed annuities often receive larger tax cuts while stock dividends are assessed at lower tax rates. Additionally, the equity in your home most likely receives the best tax treatment, making a reverse mortgage a viable option. 

See Jerry Golden, The Tax Bomb in Your Retirement Plans, Market Watch, October 18, 2016. 


October 19, 2016 in Estate Planning - Generally, Income Tax | Permalink | Comments (0)