Wills, Trusts & Estates Prof Blog

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

A Member of the Law Professor Blogs Network

Wednesday, January 28, 2015

Estate Planning To-Do List

Estate plan 2

January is generally a busy month for estate planners as clients follow up on resolutions to get their estate plans in order.  Regardless of whether you are hearing from clients, consider being proactive with them since the beginning of the year is a perfect time to handle many estate planning tasks. Below is list to help update and review clients’ estate plans.

  1. Make exclusion Gifts Early.  Although many clients know that each year they can make annual exclusion gifts, they may not know the best possible time to make these gifts is at the beginning of the year.  This way, if something were to happen to a client during the course of the year, the value of the gift would already be outside of the estate for estate tax purposes. 
  2. Fund Revocable Trusts.  Help clients put assets into a revocable trust in order to provide quick access in the event of incapacity or death, and to keep personal affairs private. 
  3. Check Beneficiary Designations.  A common and potentially costly mistake involves outdated or never signed beneficiary designation forms.  For many clients, life insurance policies and retirement benefits represent valuable assets and if these are incorrect, making changes can be expensive or even impossible.
  4. Review Named Fiduciaries.  Choosing fiduciaries in an estate plan is critical.  Moreover, you must review these fiduciaries on a regular basis.  While a client may have named the right person or institution at a certain point in time, subsequent changes could have altered their situation. 
  5. Get Procrastinators to Act.  Even though it can be difficult to motivate an unmotivated client, an unexpected incapacity or death is even more difficult for a family and is not a rare occurrence.  It is critical to lay out your client’s options and ensure they understand the detriments of failing to have an estate plan in place. 

See Tracy Craig, Estate Planning Checklist: 5 Things to Do Now, Financial Planning, Jan. 27, 2015.

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

January 28, 2015 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

The Story Behind Asset Protection Trusts

HistoryThe current legal treatment of trusts for asset protection has a rich history that dates back to early Roman Civil Law. Dating back in history to a time predating Christ, Roman law had a testamentary trust concept called fidei commissum. England then developed the Roman trust law to include inter vivos trusts. Prompted by concerns for a need for a way to protect creditors against trusts being used by debtors to avoid repayment, English law further borrowed from Roman laws regarding fraudulent transfers law.

After the English trust laws came to the colonies, the spendthrift clause began to develop in the late 1800s. The concept of a spendthrift clause was opposed by commentators, and the invalidity of self-settled spendthrift trusts became established law. That is until the Offshore Boom of the 1990s prompted states to change their laws, and brings us to the current trust climate in which Domestic Asset Protection Trust (“DAPT”) are allowed in 16 states.

See Jay Adkisson, A Short History of Asset Protection Trust Law, Forbes, Jan. 26, 2015.

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

January 28, 2015 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 27, 2015

Avoiding Financial Ruin The Second Time Around

Divorce 2

While love may be lovelier the second time around, it may be much more complicated if it does not last.  Second marriages already struggle, as they have a divorce rate exceeding 60 percent.  Most of these divorces will not result in the $974 million payout that Texas oil tycoon Harold Hamm gave to his ex, but all second marriages require special planning.  Below are a few things to consider:

  • Prenuptial Agreements.  Sorting out the legal and financial issues ahead of time can prevent soaring costs later.  Prenuptial agreements are also being used to address issues within the marriage such as spending priorities.
  • Postnuptial Agreements.  Even if you did not do a prenup, married couples can opt for a postnup.  This often deals with housekeeping issues and lifestyle disputes.  These agreements are useful in times of marital crisis.  Monetary penalties for indiscretions are commonly incorporated into the document.
  • Estate Planning for a Second Marriage.  If the couple escapes divorce, the marriage will end at death.  The competing interests will be one’s adult children and the new spouse.  One solution is to grant the surviving spouse a “right of occupancy” in the house, which can be done with a will or trust and gives the survivor the right to reside in the home until the earlier of her death, departure, or a fixed number of years. 

See Ann-Margaret Carrozza, How to Avoid Financial Pain If Your Second Marriage Fails, New York Daily News, Jan. 26, 2015.

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

January 27, 2015 in Estate Administration, Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Taxing Tax-Free Plans

529 plan

The Obama administration’s fight for the middle class, which was made known in last week’s State of the Union address, may also include a war on 529 College Saving plans. 

Many people who are saving for their kids’ education are putting after-tax dollars into a 529 account that are run by states.  This grows tax-free and money is withdrawn tax-free when it is time for school.  Now, Obama wants to end tax-free withdrawals from these accounts, beginning with new contributions, supposedly to eliminate a tax break for the wealthy. 

According to the Washington, D.C.-based College Savings Foundation, almost 10 percent of accounts are held by families with an income below $50,000 per year.  Over 70 percent are owned by families with incomes below $150,000.  Many of those who open a 529 account do it to get federal tax benefits.  “The President claims that 529 savings plans only help the wealthy, but we couldn’t disagree more,” said Kathryn Flynn, content director at Savingforcollege.com.  “Many hardworking families are currently taking advantage of these benefits to help ensure a solid future for their children.”

See John Sandman, Obama’s Blues for the Middle Class: Let’s Tax Withdrawals From 529 College Savings Accounts, Main Street, Jan. 26, 2015.

January 27, 2015 in Current Affairs, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Monday, January 26, 2015

The American Sniper's Legal Quandary

Chris Kyle

The movie “American Sniper,” based on the life of ex-Navy SEAL Chris Kyle, has grossed more than $130 million in domestic ticket sales.  Yet, the SWAT team training business that Mr. Kyle founded after leaving the military is preparing to shut down.

In 2009, Mr. Kyle borrowed about $2.6 million from an investor group to start his business, Craft International LLC.  His Dallas-based company offered training for police officers, SWAT teams and military members, but struggled to turn a profit.  After Mr. Kyle was killed on a Texas shooting range in 2013, Ms. Kyle and Craft executives began fighting over who owned the company. 

Now, Ms. Kyle and Craft’s creditors have reached a settlement under which the company will shut down, the Kyle family can live rent-free until October 30 in their Texas home, and Ms. Kyle will get the rights to Craft’s skull-shaped logo.  The settlement still needs court approval and U.S. Bankruptcy Judge Barbara J. Houser has agreed to look over the settlement at a February 17 hearing.

See Katy Stech, Behind ‘American Sniper,’ A Lot of Legal Sniping, Market Watch, Jan. 24, 2015.

January 26, 2015 in Current Affairs, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Why Social Security Won't Cover Retirement

Social security 1

One of the most financially disastrous mistakes you can make is to assume that Social Security will cover your retirement.  This is particularly dangerous because if you do not realize that mistake early on, it may be too late.

While Social Security does play an important role in retirement plans for millions of Americans, the odds are high that it will not be enough to fund your retirement by itself.  Below are three key reasons why:

  1. Social Security is not designed to be your only source of retirement income.  Social Security’s benefit calculation is not designed to provide you much more than a buffer against abject poverty in your old age. 
  2. Social Security’s Trust Funds are emptying, which may cause benefits to decrease by 23%.  The $1,328 that a typical retiree receives today would become the inflation-adjusted equivalent of $1,022 in 2033, once the Trust Funds empty.  Even if Congress tries to remedy the problem, this has generally consisted of some combination of tax hikes or benefit cuts.
  3. The demographic tides are shifting against Social Security’s funding model.  Social Security is a “pay as you go” system in which your taxes pay for the current recipient’s benefits.  This works fairly well so long as there are enough people paying into the system.  However, as the population ages and a smaller portion participate in the workforce, Social Security’s funding is becoming stretched. 

Regardless of what happens to Social Security in the future, the reality has been that if you want a comfortable retirement, you need to save above and beyond.

See Chuck Saletta, 3 Reasons Social Security Won’t Cover Your Retirement, The Motley Fool, Jan. 24, 2015.

January 26, 2015 in Elder Law, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

IRS Allowed Division of IRA

IRAA recent private letter ruling addressed the consequences of a trustee dividing an IRA into separate IRAs for each of five beneficiaries.

In Private Letter Ruling 201503024, the IRS held that the division was permissible, the trustee-to-trustee transfers on behalf of the beneficiaries did not constitute a taxable distribution or attempted rollover, the IRAs retained their qualified status, and the five beneficiaries may still use the life expectancy of the oldest beneficiary for RMDs.

See Dawn S. Markowitz, Trustee's Actions Regarding Beneficiary IRAs, Wealth Management, Jan. 22, 2015.

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

January 26, 2015 in Estate Planning - Generally, New Cases, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Sunday, January 25, 2015

Proposed Elimination of Step-Up Basis May Increase Trust Popularity

Trust2Included in President Obama's proposed tax law changes during his State of the Union Address was the elimination of "step-up" basis. The purpose of the proposal is to close the "trust fund loophole." However, the end of step-up basis may create a rise in the popularity of trusts by adding additional tax advantages for the use of trusts, which declined with the increase of the Federal estate tax exemption and addition of portability.

See Janet Novack, Obama Attack On "Trust Fund Loophole" Could Increase Tax Advantage of Trusts, Forbes, Jan. 20, 2015.

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

January 25, 2015 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Saturday, January 24, 2015

The Outdated QPRT

HouseQualified personal residence trusts (QPRTs) may have outlived their usefulness and cause more damage to an estate plan than they are worth. QPRTs were popular in the 1980s when the Federal estate tax exemption was $600,000. The increase of the exemption to the current $5.43 million takes away the advantage of QPRTs for most individuals, but leaves the downside, which is a stagnate basis when the ownership of the residence is transferred resulting in a larger gain and higher capital gains tax. Possible solutions for existing QPRTs vary based on state law.

See Michael Ide, How QPRTs Went From Effective Estate Planning to Time Bomb, Value Walk, Jan. 21, 2015.

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

January 24, 2015 in Estate Planning - Generally, Estate Tax, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, January 22, 2015

New Book: Tax Planning for Retirees

Tax planning for retirees

Vorris J. Blankenship recently published a book entitled, Tax Planning for Retirees (2014).  In this book, Mr. Blankenship has combined his extensive knowledge of accounting and tax laws to help clients stretch their retirement dollars to the maximum.  This complete, one-stop guide is filled with “how to do it” expertise that will help practitioners steer clients towards the best tax and estate planning decisions possible, both before and during retirement.  This comprehensive book is everything you will need to navigate complex tax-planning issues with confidence, root out every tax-saving opportunity, and help your clients keep more of their nest eggs for themselves.  Written in clear, jargon-free language, the book covers:

  • Federal tax treatment of everything from IRAs and Social Security benefits to long-term care insurance and disability benefits.
  • Strategies for optimizing IRA and 401(k) distributions.
  • Pensions, ESOPs, veterans’ benefits, and all other types of retirement income.
  • Smart Estate Planning to protect retirement benefits. 

January 22, 2015 in Books, Books - For Practitioners, Estate Administration, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)