Wills, Trusts & Estates Prof Blog

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

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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)

Article on Split-Interest Charitable Trusts

John StrohmeyerJohn R. Strohmeyer (Porter Hedges LLP) recently published an article entitled, Split-Interest Charitable Trusts, 29 Probate & Property No. 1 (January/February 2015).  Provided below is an excerpt from the article:

Generally, the Internal Revenue Code (the "Code") does not allow a charitable deduction for a gift of a partial interest in property. But the Code allows donors to create split-interest trusts to make a gift of a partial interest in property in trust and receive the IRC § 170(c) charitable deduction. If the donor wants to retain a present interest in property and make a gift of a future interest in property to an organization eligible to receive charitable donations under IRC § 170 ("an IRC § 170(c) organization"), the donor can create a charitable remainder trust (CRT). Alternatively, if the donor wants to make a gift of a present interest in property to an IRC § 170(c) organization, with the donor retaining a remainder interest in the property, the donor can create a charitable lead trust (CLT).

January 27, 2015 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

Monday, January 26, 2015

Questions Surrounding Obama's Tax Proposals

Tax QuestionsThe tax proposals from President Obama, including increased capital-gains tax rate for top earners and an end to step-up basis, and a White House fact sheet has raised questions. Here are some inquiries raised by the proposals:

  • Whether the person giving or receiving the gift would owe the capital gains tax?
  • Whether the new tax structure would include a provision directing executors how to handle property when they do not know how much they paid for it originally?
  • Will trust distributions trigger capital-gains tax?
  • Where is the line between which family heirlooms will be considered excluded?

See Laura Saunders, 5 Questions on Obama's 'Step Up' Tax Proposal, The Wall Street Journal, Jan. 22, 2015.

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

January 26, 2015 in Estate Planning - Generally, Income Tax, Trusts | 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

Trusts That Are Trimming Taxes

Trust Despite the funny-sounding names, incomplete grantor trusts are serious tax-minimization tools.  These trusts are often formed in Delaware, Nevada and sometimes Wyoming (hence the acronym, “DING,” “NING” and “WING”) because these states do not tax the income of trusts established there, even by people who live elsewhere, or have favorable tax rules. 

Advisers say this strategy is especially in demand with residents of California and New Jersey, where top marginal income-tax rates are 13.3% and 9.97%.  New York, another high-tax state, came down on the practice last year and no longer allows residents to use the trusts to avoid state taxes.  

One risk is that additional states could negate the tax benefits for their residents.  Moreover, people contemplating the creation of such trusts should think about timing.  If an asset put into a trust is immediately sold and the money distributed back to the person forming it, which is likely to raise red flags with state tax authorities as a sham. Yet by creating a trust, selling the assets years down the line then distributing them some time thereafter is less likely to raise negative attention.

See Liz Moyer, Trusts That Can Trim State Income Tax, The Wall Street Journal, Jan. 23, 2015.

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

 

January 25, 2015 in Current Affairs, Estate Administration, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

Battle Continues Over Louisiana's Largest Fortune

Tom Benson

Two days after Tom Benson announced a drastic shift in his succession plan, experts say that a newly launched court battle could come down to the trusts that Benson has created over the years. 

This includes a key document, which was drawn up in 2009, when Benson named his now-estranged daughter and grandchildren as the majority beneficiaries to his sports empire in an irrevocable trust.  “An irrevocable trust is a trust generally created during someone’s lifetime that is exactly what it says—it can’t be revoked.” 

Now, Benson will leave his billion-dollar-plus fortune to his current wife of ten years, Gayle Benson.  However, due to the irrevocable trust, this will not be easy.  “A lot of what’s going to play out is what’s actually in that trust itself.  Especially when you’re trying to divest a beneficiary of their interests in the underlying assets, it’s especially difficult to do.”    

Attorneys in the suit will return to court February 10th for procedural matters.

See Fight Over Louisiana’s Largest Fortune Continues, WDSU News, Jan. 23, 2015.

January 25, 2015 in Current Affairs, Disability Planning - Property Management, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

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)

Friday, January 23, 2015

DIY Estate Planning Pitfalls

TrustIndividuals tackling the task of estate planning on their own, sometimes realize that their estate or goals are more complicated than DIY estate plans are intended to address. While some simple matters may warrant the use of less expensive DIY methods, more complex estate planning issues create common pitfalls that can cause unintended consequences when relying on a DIY estate plan. One common unintended consequence is an improperly funded trust created by missing additional steps for funding the trust, such as changing the title for real property or also including a pour over will.

See Dennis A. Fordham, Your Legacy and Peace of Mind: The Pitfalls of Do-It-Yourself Estate Planning, Record-Bee, Jan. 20, 2015.

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

January 23, 2015 in Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Article on Perpetuities and the Genius of a Free State

Joshua TateJoshua C. Tate (Associate Professor, SMU Dedman School of Law) recently published an article entitled, Perpetuities and the Genius of a Free State, 67 Vand. L. Rev. 1823 (2014), Commentary on Steven J. Horowitz & Robert H. Sitkoff, Unconstitutional Perpetual Trusts, 67 Vand. L. Rev. 1769 (2014). Provided below is the introduction of the article:

Legal history, like all history, is inevitably a speculative affair. No one can be sure what the editors of Justinian’s Digest might have excised from long-lost works of classical Roman law; nor can one know for certain what went through the minds of certain justices of the U.S. Supreme Court in the mid-twentieth century when they formed and reformed their views on Roosevelt’s New Deal. Of course, scholars can try to chip away at this uncertainty: great progress can be made through educated guesses and learned theories. But certainty about the past is reserved for those who lived in it.

What is true for history in general is true for the history of state constitutional prohibitions of perpetuities, and in particular for the curious prohibition in the 1776 North Carolina Constitution and Declaration of Rights. The North Carolina prohibition is particularly important because it came first, and its language influenced later state constitutions.2 As Horowitz and Sitkoff demonstrate in their Article, many good reasons can be offered for the provision.3 It is nevertheless a curious prohibition, because it is absent from the constitutions of the twelve other original states. Why did this provision emerge only in North Carolina, and not in Virginia, Massachusetts, Pennsylvania, or any of the other  “free states” that together rose up against their colonial masters?

This Comment will suggest a possible answer to that question. Although the problems with perpetuities were well known to learned inhabitants of all the newly independent American states, those problems were particularly salient in North Carolina in 1776 due to that colony’s unique history as a former proprietary colony. King Charles II created the original province of Carolina to reward eight men who had offered vital assistance while he was in exile.4 The decision by the heir of one of these original Lords Proprietors not to sell his share back to the British Crown gave rise to specific grievances in North Carolina—grievances that did not exist in the other twelve former colonies.5 Moreover, North Carolina was unique in witnessing a violent confrontation between the colonial authorities and backcountry farmers that stemmed, in part, from those grievances.6

The peculiar case of the Earl Granville and assorted problems in his Granville District shifted the problem of perpetuities from the periphery to the center of North Carolina politics in the late eighteenth century, and thus warranted an explicit mention of perpetuities in the 1776 North Carolina Constitution and Declaration of Rights. For the framers of that document, the social ills caused by tying up land indefinitely in the hands of the few were of paramount importance, and had to be addressed to build a successful coalition for independence. This Comment first discusses the political and social history of the province of North Carolina, focusing in particular on the Lords Proprietors and Earl Granville. The Comment then addresses how that history likely impacted the 1776 Constitution and Declaration of Rights, which created a conservative system of government despite radical instructions from some backcountry counties, and finally offers a few concluding thoughts about the aspirations of many North Carolina patriots at the dawn of independence.

January 23, 2015 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)