Wills, Trusts & Estates Prof Blog

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

Friday, August 17, 2018

Article on The Future of Salt: A Broader Picture

SaltDavid Gamage & Darien Shanske recently published an Article entitled, The Future of Salt: A Broader Picture, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

In this essay, we evaluate the new cap on the state and local tax (SALT) deduction. We argue that the structure of the new cap is not consistent with any theory as to what the SALT deduction is or should be. In canvassing these theories, we further evaluate how future reforms to the SALT deduction might proceed.

August 17, 2018 in Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Thursday, August 16, 2018

Article on Retrenchment, Temporary-Effect Legislation, and the Home Mortgage Interest Deduction

HomeVictoria J. Haneman recently published an Article entitled, Retrenchment, Temporary-Effect Legislation, and the Home Mortgage Interest Deduction, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article:

There are several sacred cows in the Internal Revenue Code, but perhaps none quite as sacrosanct as the home mortgage interest deduction. U.S. Treasury Secretary Steve Mnuchin has characterized the mortgage interest deduction as so beloved by the American people that it is “kind of like apple pie.” Reform of the home mortgage interest deduction has been described as the third rail of tax reform, in that “touching the [mortgage interest deduction] is not just treasonous but ruinous.” That is, until December 22, 2017 when the Tax Cuts and Jobs Act of 2017 was enacted. And though the change to Section 163 may not seem significant by its own terms, its interaction with other changes to the Internal Revenue Code will result in profound change: the reduction of the home mortgage interest cap to $750,000 from $1 million will interact with the provision capping state and local property, sales, and income tax at $10,000, and the almost-doubled standard deduction. The obvious effect will be fewer homeowners itemizing their home mortgage interest deduction: an estimated 44% of taxpayers received the benefit of the home mortgage interest deduction under prior law, and it is anticipated that this number will drop to less than 15%.

Notably, the Tax Cuts and Jobs Act of 2017 continues a process of temporary-effect lawmaking—the changes to the home mortgage interest deduction expire in eight years unless extended by Congress. The use of temporary-effect legislation that came into vogue during the administration of George W. Bush has been the object of scathing critique, with a prevailing view that such legislation is generally little more than a manipulation that allows the cost of legislation to be distorted. This Article considers the advantages of temporary-effect legislation through the lens of an entrenched tax expenditure, namely the home mortgage interest deduction. The Article models the impact of the home mortgage interest deduction upon the returns of several different taxpayers, under both prior and current law. A problem is illuminated in that both the previous and present approaches are broken: a pernicious regressive subsidy has been exacerbated, and a drip-feed of upper- and upper-middle class welfare benefits delivered through the Internal Revenue Code continues. Consequently, the Article explores the anathema of temporariness to address retrenchment to fix this tax expenditure, and balances the negative externalities that flow from renewal uncertainty against long-term policy implications.

The ambition of this Article is to evaluate the recent changes to the home mortgage interest deduction both from a tax policy perspective and to also consider the politics and processes that are drivers—and so Section V suggests that it is time to pivot. Temporary-effect legislation has created a window during which it is feasible to retrench the entrenched home mortgage interest deduction from the Internal Revenue Code, with little political cost, and replace the deduction with a targeted tax credit to subsidize homeownership.

August 16, 2018 in Current Affairs, Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Wednesday, August 15, 2018

Estate Planning for Crypto and Other Digital Assets: What You Need to Know

BitcoinEstate planning has evolved past simply writing a will and placing other documents in a safe deposit box. With the rise of the internet, cloud storage, and crypto currency comes a new style of planning for one's death.

Your executor still needs to know what assets you have and how to access them, and tt is the access that is the trickiest part in planning for handing off your digital assets to your heirs. “It’s most important to explain (to them) the kinds of assets, key locations, and access controls you’re using for security. Access controls are things like PINs, passphrases, multisignature or timelock requirements,” explains Pam Morgan, a probate attorney who has written a book on cryptoasset inheritance planning.

The vast majority of states with laws on digital assets have adopted a model law that was written broadly enough to include things that haven’t been invented yet, says Ben Orzeske, chief counsel for the Uniform Law Commission. So far, 42 states have enacted laws allowing executors to manage digital assets in much the same way they do traditional holdings of estates.

See Ted Knutson, Estate Planning for Crypto and Other Digital Assets: What You Need to Know, Forbes, August 14, 2018.

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

August 15, 2018 in Current Affairs, Estate Planning - Generally, New Legislation, Technology, Wills | Permalink | Comments (0)

Monday, August 13, 2018

3 Tax Breaks That May be Better in the Long Run

The tax overhaul that was pushed through Congress last year, the Tax Cuts and Jobs Act (TCJA), has left some agencies and professionals still grappling with its effects. Many of the changes have to do with the little details of taxes and short-term tax benefits, that may not be the best thing to do for greater benefits later. The tax changes and exemption increases are not yet permanent, and until that time they should be deemed temporary. Mitchell Drossman, national director of wealth planning strategies at U.S. Trust explains, “This tax law is a temporary provision because most of the individual tax provisions sunset at the end of 2025.”

Short-term benefits may look desirable, but here are three tax breaks that may be better in the long run:

  • Estate Tax
    • For the very wealthy, an important question is whether to make substantial gifts to heirs now or to leave it to them later in a will. It has become a big issue because the estate and gift tax exemption is now $11 million per person or $22 million for a couple. If they gift them now, the recipients will have to only pay capital gains tax rather than estate tax, and the gifting party will end up saving on taxes. But debating a large gift solely on the basis of taxes is a difficult decision, and advice may need to be sought.
  • Capital Gains Tax
    • Indexing an investment’s purchase price to inflation could also reduce the amount of a loss a taxpayer could claim as a deduction in the long run. Not all investments rise. And the ones that lose money can be carried forward on tax returns until future gains soak them up.
  • Charitable Giving
    • The standard deduction has been increased to $12,000, and there is no itemized deduction for charitable giving. For those that are privy to donating a certain amount that is less than this threshold, they may worry about how to achieve their goal of giving while receiving the benefit of the deduction. One solution is front loading a donor-advised fund, allowing them to give each year while initially getting over the itemized deduction amount.

See Paul Sullivan, 3 Tax Breaks That May be Better in the Long Run, New York Times, August 10, 2018.

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

August 13, 2018 in Current Affairs, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Wednesday, August 8, 2018

Article on The Case for Preempting SALT Cap Workarounds

SaltHayes Holderness recently published an Article entitled, The Case for Preempting SALT Cap Workarounds, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article.

A growing number of states are considering or enacting state laws designed to counteract the Tax Cuts and Jobs Act’s $10,000 cap on the federal state and local tax deduction. These state workarounds appear technically functional at first glance but run into a deeper problem on further examination: they may be preempted as frustrating the objectives of Congress. This essay explores the case for and against preemption of these workarounds. The states’ frontal attack on the state and local tax deduction cap may prove the key to their demise, even though the states are exercising basic state powers which the courts have been loath to preempt.

August 8, 2018 in Articles, Current Affairs, Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Why Some Wealthy Americans May be Thinking About Getting a Divorce Before the End of This Year

AlimonyOne aspect of the changes to the tax code brought about by the Trump administration is set to take effect on January 1, 2019, with the end of the alimony deduction.  The alimony deduction has been particularly beneficial for wealthy individuals, who can often significantly reduce their tax bill by making alimony payments to a former spouse. This will no longer be the case, and the person receiving the alimony will no longer have to pay taxes on the money they receive.

Some lawyers and financial advisors are telling clients who may be contemplating a divorce that if they want to take advantage of the alimony deduction, they should act now. Though not all divorces can be settled amicably or without some form if litigation, the tax incentive for the ex-spouses may make things easier.

Most experts say that individuals who are already divorced have nothing to worry about. But any Americans who are considering a divorce should think carefully about their next steps and consult their financial advisors about what these tax changes mean for them.

See Elizabeth Carson, Why Some Wealthy Americans May be Thinking About Getting a Divorce Before the End of This Year - Thanks to Donald Trump, Lexology, August 6, 2018.

 

August 8, 2018 in Current Affairs, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Warning: $10 Million Estate Tax Exemption Can Overfund Trusts at Death and Harm Your Surviving Family

TrustThe increase in the generation skipping transfer (GST) tax exemption in the recent legislation may appear to be a great addition to a wealthy person's estate plan, but it could lead to issues if not calculated properly for wills or trusts executed prior to 2018. The death of one spouse could result in a "lopsided" subtrust structure that is contrary to the deceased spouse's intent.

Before the increase, married couples' estate planning documents often directed the estate tax exemption amount to pass to a "credit shelter," "family," "A-B," or "bypass" trust—usually for the benefit of a spouse and/or children—with the excess passing either to the surviving spouse outright or to a marital trust for the surviving spouse's benefit. If a married couple fails to update a "bypass trust" estate plan executed before 2018, and if one spouse dies in 2018, then all or most of the deceased spouse's assets could end up funding the bypass trust(s) without any excess flowing outright to, or in trust for, the surviving spouse (as was intended upon execution of the will or trust).

See John R. Cella, Jr., Warning: $10 Million Estate Tax Exemption Can Overfund Trusts at Death and Harm Your Surviving Family, Ward and Smith, August 3, 2018.

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

August 8, 2018 in Current Affairs, Estate Administration, Estate Planning - Generally, Generation-Skipping Transfer Tax, New Legislation, Trusts | Permalink | Comments (0)

Tuesday, August 7, 2018

Article on The Charitable Contribution Strategy: An Ineffective SALT Substitute

UstaxAndy Grewal recently published an Article entitled, The Charitable Contribution Strategy: An Ineffective SALT Substitute, Tax Law: Tax Law and Policy eJournal (2018). Provided below is an abstract of the Article:

Various states have proposed or enacted laws designed to circumvent the new $10,000 federal limit on state and local tax deductions. The new laws generally contemplate that taxpayers will substitute their tax payments with charitable contributions to state-controlled funds. This Article explores whether that strategy works and concludes that it does not. It also considers the IRS’s recent notice on the strategy and offers recommendations on how to best draft regulations.

August 7, 2018 in Articles, Current Affairs, Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Thursday, August 2, 2018

Article on Postmortem Austerity and Entitlement Reform

Ss2Reid K. Weisbord recently published an Article entitled, Postmortem Austerity and Entitlement Reform, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article.

This Essay proposes a novel policy of "postmortem austerity" to address the unsustainable, rapidly escalating cost of federal entitlement programs following the 2017 tax reforms. If Social Security and Medicare continue on their current path to insolvency, then they will eventually require austerity reforms absent a politically unpopular tax increase. This Essay argues that, if austerity becomes necessary, federal entitlement reforms should be implemented progressively in a manner that minimizes displacement of benefits on which individuals relied when saving for old age. A policy of postmortem austerity would establish new eligibility criteria for Social Security and Medicare that postpone the effective date and economic consequences of benefit ineligibility until after death. All individuals would continue to collect federal entitlements during life, but at death, wealthy decedents would be deemed retroactively disqualified from part or all of Social Security and Medicare benefits received during life. The estates of such decedents would then be liable for repayment of disqualified benefits.

August 2, 2018 in Articles, Current Affairs, Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Tuesday, July 31, 2018

Top Trends in Charitable Giving for High-Net-Worth Individuals

GiveProvisions of the Tax Cuts and Jobs Acts (TCJA) has shifted the shifted the focus of charitable-giving to high-net-worth individuals and decreased the incentive for moderately wealthy individuals to donate to charitable organizations. The following are a few vehicles and concepts that high-net-worth donors and some moderately wealthy donors should be considering.

  • Gift Bunching Combined with DAFs
    • Many Americans no longer itemize their deductions now that the TCJA increased the standard deduction to $24,000 per couple. The charitable deduction is an itemized deduction, so there is less incentive. For those that were used to giving less than the new standard deduction, a moderately wealthy individual can now set up a donor advised fund (“DAF”) either with a local community charity or with a financial institution-sponsored fund and give the aggregate amount to the DAF.
  • Grantor Charitable Lead Annuity Trusts—CLATs
    • Grantor charitable lead annuity trust, or CLATs, can be set up where one or more charitable organizations receives a series of periodic payments for a number of years from a trust, after which time, the remaining amount left in the trust is paid to non-charitable beneficiaries, generally family members or trusts for their benefit, free of gift and estate tax.
  • Holistic Tax And Estate Planning
    • Wealthy individuals can maximize the efficiency of charitable giving while retaining control over investments (such as family limited partnerships) and reducing taxes by integrating such charitable vehicles with FLPs or FLLCs.
  • Almost Charitable LLC
    • An interesting current technique is actually no technique and produces no immediate charitable deduction. This is the use of a standard LLC as a centralized charitable giving fund. In this case, an individual forms an LLC and funds it with cash or other assets that he ultimately plans to give to charity.

See Seth Kaplan, Top Trends in Charitable Giving for High-Net-Worth Individuals, Financial Advisor, July 27, 2018.

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

July 31, 2018 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts | Permalink | Comments (0)