Wills, Trusts & Estates Prof Blog

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

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Wednesday, September 17, 2014

IRS Focuses Audits on Employer Practices

Audit1A recent examination of frequently audited topics related to employee benefit retirement plans revealed that the IRS and DOL have focused their attention on how employers handle internal control of benefit plans for their employees. Here are some of the most common compliance topics that the IRS has focused on in audits for the past five years:

  • How “compensation” is defined in both the plan document and administration.
  • How often the plan document is updated and whether it includes all current amendments.
  • Whether eligibility and enrollment criteria are properly followed.
  • If all of the documentation for plan loans are maintained and properly distributed.
  • Whether distributions and related documentation is properly handled for former employees.

See Nancy S. Gerrie & Jeffrey M. Holdvogt, Top IRS and DOL Audit Issues for Retirement Plans, Mondaq, Sept. 15, 2014.

September 17, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 16, 2014

Making Charitable Donations With Life Insurance

Life insurance

Each year millions of Americans make donations of cash and property to the charities of their choice.  While these donations can provide valuable tax deductions, many donors wish that they could do more for the charities they support.  Thus, it would be wise for some donors to consider using their life insurance as a more effective means of leveraging the support they provide. 

One way of doing this is to gift a life insurance policy, which can in turn greatly reduce the donor’s taxable estate and save thousands of dollars in estate taxes.  There is no limit on the size of the policy that may be donated, since charitable donations have no ceiling for estate tax purposes.

Naming a charity as a beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy.  However, this strategy does not offer the income tax advantages that come with the gifting policy, although it still reduces the donor’s estate by the amount of the death benefit. 

It is also possible for policyholders to receive the dividends paid to their life insurance policies in cash and donate them to a charity.  The dividends donated are deductible in the same manner as premiums paid on a gifted policy.

See Mark P. Cussen, Using Life Insurance to Make Charitable Donations, Investopedia.

September 16, 2014 in Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Colorado Enacts List of Prohibited Words in Insurance Advertising

AntiIn response to complaints about misleading words used in advertising for insurance products, such as life insurance and annuities, Colorado has enacted legislation that bans certain words. The words deemed misleading and banned by Colorado include “investment”, “savings”, “retirement plan”, “safe”, and “secure”, among other commonly used words in insurance advertising. Similar lists of words no longer allowed for advertising insurance plans are used in roughly 13 states, and based on model regulations created by the National Association of Insurance Commissioners.

See Roccy DeFrancesco, Colorado Bans Use of Word “Safe” in Life and Annuity Advertising, Producers Web, Sept. 9, 2014.

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

September 16, 2014 in Estate Planning - Generally, New Legislation, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

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

Using 529 Funds for Internships


Internships enable students apply what they are learning in the classroom to the real world.  Yet, if you plan in applying funds from a 529 tax-advantaged college savings account to cover all of these expenses related to an internship, think again. 

When funding an internship experience you must first know how much it is going to cost.  Costs of travel, housing, and food can quickly add up, and it is important to take these things into consideration. 

To figure out how to use any available 529 savings for internship costs during the school year, the most significant factor is whether the student will earn college credit.  “Internships are great opportunities to get some real hands-on knowledge.  Regardless of whether the internship is paid or unpaid, the bigger question is: Is a student earning school credit for an internship?”  If earning school credit, there typically is a fee for that because credit hours cost money.  In that case, the credit hours for the internship are tax-free.”

Furthermore, you must be enrolled in school.  If you take it out of the college context, an internship is just a job and you cannot use 529 funds. 

Financial experts advise against using 529 funds for expenses such as travel and food.  The 529 is typically for tuition, room and board and books.  With 529 funds, it is the responsibility of students and their families to use the money in ways that are eligible or else face the consequences of tax penalties.  Remember that you are bound by the IRS rules. 

See Lori Johnston, Turn to 529 Plan Savings for Some Internship Expenses, U.S. News & World Report, Sept. 12, 2014.

September 15, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Article on Inherited IRAs

IRALester B. Law & Bryan D. Austin recently published an article entitled, Inherited IRAs: Tragedy or Planning Opportunity—Clark v. Rameker, 28 Probate & Property No. 5 (Sept. & Oct. 2014).  Provided below is an excerpt from the article:

In Clark v. Rameker, 573 U.S. __ (2014) (No. 13-299), the Supreme Court unanimously held inherited IRAs are not exempted “retirement accoutns” under the federal Bankruptcy Code. This article summarizes the facts, outlines the judicial history, examines the rationale, and provides some insights into planning for IRAs in light of the new case.

    Like many cases, Clark is akin to a theatrical production.

        Act I—The Creation and Inheritance

Scene I—The Creation

The curtain rises.

    It is the new millennium and Ruth Heffron (Ruth) visits her financial advisor to establish a Traditional IRA, naming her daughter, Heidi Heffron-Clark (Heidi), as the beneficiary. Though uncertain, the audience believes that the IRA was probably rolled over from Ruth’s deferred compensation account (for example, her 401k).

September 15, 2014 in Articles, Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Sunday, September 14, 2014

What to Know About Your IRA


The “I” in IRA stands for individual and is significant, as you have the ability to customize your deposits, take withdrawals when you want, and you are responsible for paying taxes on distributions.  Below are a few features of IRAs that will help you get the most out of your contributions:

  • Contribute to more than one IRA. Contribute to as many IRAs as you would like, but the total deposited in all IRAs is limited to the annual maximum amount.
  • All regular IRA contributions must me in cash. This limitation does not apply to the distribution of securities that are rolled over.
  • IRA losses may be deductible. An advantage of an IRA account is the ability to defer taxes on gains and investment income.
  • Control your required minimum distributions. Traditional IRA owners must begin taking required minimum distributions by April 1 of the year after they turn 70.5 years old.  The amount is based on the balance of the account on December 31 of the previous year and the owner’s life expectancy.
  • No reason needed to transfer or roll over your IRA. If you decide to maintain the same type of IRA account with a different company, you can move the assets as a transfer or a rollover.
  • IRAs can be annuities. Your annuity can operate under the same rules as an IRA, if the funding is an Individual Retirement Annuity.  Annuity policies were designed to provide retirement income for life. 

See Stephanie Powers, 11 Things You May Not Know About Your IRA, Investopedia. 

September 14, 2014 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Saturday, September 13, 2014

Estate Planning for Unmarried Couples

Couple doing paperwork

Estate planning is a must for everyone.  The benefits are palpable including tax savings, efficient disposition of assets, end-of-life decisions, financial security for heirs and general peace of mind. 

For unmarried couples, the issues concerning financial and estate planning can be complex and the rules burdensome.  Below are some key planning strategies unmarried couples should keep in mind to protect both partners:

  • Account and Property Titling. Legal ownership of property or accounts can affect how they are distributed in the event of a legal owner’s death.  Partners can utilize trusts, tenancies in common, and joint tenancies with the right of survivorship to own property.
  • Retirement Plans. Unmarried couples must make sure that the correct person receives retirement benefits and that they are not subject to avoidable taxes. To ensure your partner receives the assets from your retirement accounts you must fill out a beneficiary form. 
  • Wills, Healthcare and Power of Attorney. Wills allow unmarried partners to provide for loved ones.  A durable power of attorney for healthcare will specify the individual who can make healthcare decisions for you if you cannot make them for yourself.  Furthermore, you should have a financial power of attorney so your partner can make financial decisions on your behalf. 

See Cathy Pareto, Estate Planning Must-Haves For Unmarried Couples, Investopedia.

September 13, 2014 in Estate Planning - Generally, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Article on Trusts and Estates: Implementing Freedom of Disposition

Robert SitkoffRobert H. Sitkoff (Harvard) recently published an article entitled, Trusts and Estates: Implementing Freedom of Disposition , 58 St. Louis U. L.J. 643 (2014). Provided below is an excerpt from the article: 

The Trusts and Estates course is about the law of gratuitous transfer at death, that is, the law of succession.1 Lately such courses have come to cover both probate succession by will and intestacy, and nonprobate succession by inter vivos trust, pay-on-death contract, and other such will substitutes. The organizing principle of the American law of succession, both probate and nonprobate, is freedom of disposition. My suggestion in this Essay, which I have implemented in my Trusts and Estates class and in the casebook for which I am the surviving coauthor,2 is that the Trusts and Estates course can likewise be organized around this principle. The Trusts and Estates course is perhaps best conceptualized as a survey of the law and policy of implementing freedom of disposition.3


The American law of succession embraces freedom of disposition, authorizing dead hand control, to an extent that is unique among modern legal systems.4 Within the American legal tradition, a property owner may exclude his or her blood relations and subject his or her dispositions to ongoing conditions, as in the classic teaching case of Shapira v. Union National Bank.5 The right of a property owner to dispose of his or her property on terms that he or she chooses has come to be recognized as a separate stick in the bundle of rights called property.6

There are, of course, some limits on freedom of disposition. The law protects a decedent’s creditors and surviving spouse, and it imposes a handful of other policy limitations, such as the Rule Against Perpetuities. Gratuitous transfer of property, whether during life or at death, is also subject to wealth transfer taxes.7 For the most part, however, the American law of succession facilitates, rather than regulates, the carrying out of the decedent’s intent. Most of the law of succession is concerned with enabling posthumous enforcement of the actual intent of the decedent or, failing this, giving effect to the decedent’s probable intent.8

Notice the emphasis on the donor rather than the donee. The interest protected by the law of succession is the donor’s right to freedom of disposition. The interest of a prospective donee, being derivative of the donor’s freedom of disposition, does not harden into a cognizable legal right until the donor’s death. Until then, a prospective beneficiary has a mere expectancy that is subject to defeasance at the donor’s whim. Consequently, the justification for freedom of disposition must be found in the balance of the “proper rewards and socially valuable incentives to the donor”9 against the risk of perpetuating inequality and concentrating economic and political power.

Along with the nature and function of freedom of disposition, it is convenient at the outset of the Trusts and Estates course to consider the professional responsibility of lawyers in succession matters. Doing so alerts students to the ethical perils in trusts and estates practice,10 and it invites consideration of the role of the trusts and estates lawyer as family counselor. Because the exercise of freedom of disposition at death is the decedent’s final expressive act, the Trusts and Estates course is fundamentally about people and their most intimate relationships. Each case is a drama in human relationships and a cautionary tale.

September 13, 2014 in Articles, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, September 11, 2014

CLE on Domestic Asset Protection Trust Planning: Delaware, Ohio, Mississippi, and North Carolina

CLEThe ABA Section of Real Property, Trust and Estate Law is presenting the first of five eCLE webinars that are part the Domestic Asset Protection Trust Planning: Jurisdiction Selection Series. The first webinar will focus on asset protection laws in Delaware, Ohio, Mississippi, and North Carolina, on Tuesday, October 14, 2014, 12:00 – 1:30 p.m. CT.  1.50 General CLE Credit Hours. Here is why you should attend:

Speakers: Michael Gordon, J. Aaron Byrd, Michael Stegman, Gray Edmondson, and Scott “Rust” Trippett

There's No Place Like Home - Domestic Self-Settled Asset Protection Trusts and Inter Vivos QTIP Trusts: Why Do Them and Where To Go When You Do

Effective July 1, 2014, Mississippi became the 15th state to permit the creation of full blown self-settled asset protection trusts. Besides the 15, at least 10 other states allow some form of an asset protection trust, including inter vivos QTIP trusts. The proliferation of domestic asset protection trusts leaves attorneys inquiring about the laws in each asset protection state and the benefits of creating such a trust in one state versus another. Other frequently asked questions include:

    • What is an inter vivos QTIP trust and how can it help my clients?
    • Will domestic self-settled asset protection trusts benefit my clients?
    • Do the costs of creating a trust in one state for creditor protection or taxation benefits really outweigh the creation of such a trust in another?
    • Is the trust really protected from creditors?
    • Can the trust be used to avoid the income tax in the grantor's state of residence?
    • Can a same sex couple benefit from the use of these trusts?
    • Is using an offshore trust better?

September 11, 2014 in Conferences & CLE, Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (0) | TrackBack (0)