Wills, Trusts & Estates Prof Blog

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

Thursday, October 28, 2010

CLE on Formula Clauses

CLE The ABA Section of Real Property, Trust & Estate Law is sponsoring a 90-minute teleconference on November 16 entitled Using Formula Clauses for Sales and Gifts. The program information is below:

Transferring business interests and other difficult-to-value assets can be fraught with peril for taxpayers and their advisors. The IRS can assert a large gift where none was intended or where a smaller gift was intended. GRATs avoid these issues, but they are not always the most appropriate vehicle. Using a defined value formula clause can mitigate risks when a GRAT does not satisfy the client's objectives. Although the IRS rarely questions formula clauses in testamentary estate plans, it has challenged them for gifts and sales.

Our panelists will discuss:

  • Transfers in which defined value formulas might be considered.
  • What has happened when the IRS has attacked them (described by a lawyer who has won the most recent high-profile cases in this area).
  • How to structure where the excess goes if the IRS adjusts the value beyond what was thought to be correct. A charity is often the best donee to receive any excess value.

Learn the benefits of including a charity - and the process this entails - on March 1, 2011, when one of our panelists walks through the process with charities who have experience receiving such gifts.

October 28, 2010 in Conferences & CLE, Gift Tax | Permalink | Comments (0) | TrackBack (0)

A Prepaid Estate Tax

Estate Tax If Congress changes the estate tax from the exemption amount and rate that it’s set to return to in 2011, the extra billions would have to come from other modifications of the estate and gift tax as a practical political matter. One way Congress might do this is by placing restrictions on GRATs. Another way Congress may choose to do this is through a prepaid estate tax.

Senate Finance Committee member Maria Cantwell proposed a prepaid estate tax. Under this plan, taxpayers could prepay estate taxes on the assets in an “estate tax prepayment trust” at a discount. Essentially, taxpayers could freeze their estates for purposes of the federal estate tax. This idea is receiving serious attention largely because it could raise billions of dollars “over the next 10 years—Congress’ (shortsighted) budget time frame.” However, the possibility of people like Mark Zuckerberg avoiding the estate tax may make this proposal a tough sell to Democrats.

See Janet Novack, Should Congress Let the Next Mark Zuckerberg Prepay His Estate Taxes?, Forbes, Oct. 26, 2010.

October 28, 2010 in Estate Tax, New Legislation | Permalink | Comments (1) | TrackBack (0)

Step Transaction Doctrine

Taxes Donald P. DiCarlo, Jr. (attorney, Villanova, PA) recently published his article entitled What Estate Planners Need to Know About the Step Transaction Doctrine, 45 Real Prop., Trust & Estate L.J. 355 (Summer 2010). An excerpt from the introduction is below:

This Article introduces (or reacquaints, as the case may be) estate planners to the basic theory of the step transaction doctrine and its development and application in estate planning techniques. This Article will also examine recent case law to identify methods that estate planners can use to avoid stepping on the issue with the Service, particularly regarding the use of LLCs as wealth transfer vehicles.

October 28, 2010 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 27, 2010

Carry-over Basis Example

Estate Tax Although potential heirs may think they’d be better off if their rich grandfather died at the end of 2010 rather than the beginning of 2011, that may not be the case due to the carry-over basis. George Steinbrenner’s estate will probably pass to heirs tax-free this year, but his heirs may end up owing millions in capital gains taxes when they sell the assets. Nobody is concerned about the Steinbrenner heirs, but it’s the taxpayers who inherit small businesses that will be hit the hardest by the carry-over basis of 2010. Here’s an example of how the carry-over basis affects small business owners:

"Say Uncle Harry built his business with sweat equity. His company was worth $3 million when he died, but its tax basis was zero. Jack inherits the firm and sells it right away. If Harry died in 2009, there would be no tax (since Harry’s estate was worth less than $3.5 million it owed no estate tax, and thanks to stepped-up basis Jack owed no capital gains tax). But under 2010 rules, Jack would owe $255,000 ($3 million less the $1.3 million in allowed step-up leaves $1.7 million in gains taxed at 15 percent)."

Howard Gleckman, No Estate Tax, But 2010 Still May Not be so Great for Heirs, Tax Policy Center, Sept. 30, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.

October 27, 2010 in Estate Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Famous Octopus Dies, Donates to a Sea Turtle Rescue Center

Octopus paul Paul, an octopus at the Sea Life aquarium in Germany, correctly predicted the winner of all seven games of the World Cup. He made his predictions by opening one of two clear plastic boxes, each bearing a team flag and containing a mussel. His predictions attracted worldwide attention, and he was subsequently paid to support England’s 2018 World Cup bid. Paul also received hundreds of requests to go to Spain, but his agent turned them all down.

Paul died in his tank Tuesday morning of natural causes at the octopus old age of 2 ½ years. The aquarium hasn’t decided how to commemorate Paul yet, but they may give him a burial plot and modest shrine on the aquarium grounds. “Paul’s name will live on the Greek island of Zakynthos, where a permanent sea turtle rescue center funded in part by donations generated by the famous octopus is being established.”

Nesha Starcevic, Paul, the WCup Predicting Octopus, Dies at 2 ½, AP Sports, Oct. 26, 2010.

Special thanks to Adam J. Hirsch (William and Catherine VanDercreek Professor of Law, Florida State University College of Law) for bringing this to my attention.

October 27, 2010 in Gift Tax, Sports | Permalink | Comments (2) | TrackBack (0)

Trust Protectors

Richard-Ausness-FULL Richard C. Ausness (Gallion & Baker Professor of Law, University of Kentucky College of Law) recently published his article entitled The Role of Trust Protectors in American Trust Law, 45 Real Prop., Trust & Estate L. J. 319 (Summer 2010). An excerpt from the introduction is below:

This Article discusses some of the powers that settlors can give to trust protectors as well as some of the duties and potential liabilities that may come with this position. This Article also suggests what role a trust protector might play in connection with various types of trusts.

Part II of this Article examines the status of trust protectors in the United States. Part III identifies some of the powers that a trust protector may exercise and the sources of these powers. Part IV analyses a trust protector’s potential duties and liabilities. Part V discusses how a settlor may employ trust protectors to achieve various goals. Finally, this Article concludes by suggesting that the UTC be amended to explicitly recognize trust protectors and set forth their powers and duties.

October 27, 2010 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

CLE on Dealing with Spousal Health Issues

CLE The National Business Institute is sponsoring a 90-minute national teleconference entitled Elder Law: What to do When a Spouse is Confronting Health Issues on December 1, 2010. The program description is below:

Dealing with incapacity and end of life decisions is never an easy task. This focused legal briefing will give you the skills you'll need to help your clients maintain control when they most need you. Make certain the spouse's loss of capacity will not send your client's life crashing down. Register today!

  • Plan for tough health and financial decisions ahead of time through effective use of asset titling, durable powers of attorney and advanced directives.
  • Challenge-proof the guardianship with skillful drafting and impeccable execution.
  • Don't reinvent the wheel - use our sample forms and letters.

October 27, 2010 in Conferences & CLE, Disability Planning - Health Care, Elder Law | Permalink | Comments (1) | TrackBack (0)

Tuesday, October 26, 2010

Giving Gifts to Children

Giving gift to child
You can’t leave money or property to minors outright, so giving gifts to young children takes preparation and thought. Here are some tips:

      • Set up a Living Trust. A living trust can save the time and money involved in the probate process. After your death, your appointed trustee will manage the assets and distribute the money to the child in accordance with your directions.
      • Pick a Trustee. A bank or corporate trustee is ideal because they are regulated and will manage the money responsibly. If there’s not enough money for a professional, choose a relative or friend who has experience managing money.
      • Pick an Age. Once your beneficiary turns 18, he or she can legally take control of his or her inheritance. However, you may wish to designate a later age for him or her to get control over the trust assets.

See Alexia Elejalde-Ruiz, Bequests to the Young Hardly Child’s Play, Placing a Packed Piggybank on a High Shelf Simply Won’t Do, Chicago Tribune, Sept. 23, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.

October 26, 2010 in Estate Planning - Generally, Non-Probate Assets, Trusts | Permalink | Comments (1) | TrackBack (0)

Uniform Power of Attorney Overview and Suggestions

Andrew_hook Lisa johnson Andrew H. Hook and Lisa V. Johnson (attorneys, Virginia Beach, VA) recently published their article entitled The Uniform Power of Attorney Act, 45 Real Prop., Trust & Estate L. J. 283 (Summer 2010). The Editor’s Synopsis is below:

Historically, laws relating to durable powers of attorney were based primarily on the common law of agency, but because of the increased use of durable powers of attorney and the resulting litigation, states have begun to enact detailed statutes. In this Article, the Authors give an overview of the Uniform Power of Attorney Act and examine the Act’s individual sections. The Authors recommend several revisions to the Act and encourage states to adopt the Act to bring uniformity to this area of the law.

October 26, 2010 in Articles, Disability Planning - Property Management | Permalink | Comments (0) | TrackBack (0)

2001-2011 Estate Tax Animation

Douglas K. Cook (attorney, Phoenix, AZ) recently created an animation of the various estate tax rates and effective exemptions from 2001 to 2011. The animation is below:


The Changing Federal Estate Tax: 2001 - 2011 

Special thanks to Douglas K. Cook for allowing me to display this animation.

October 26, 2010 in Estate Tax | Permalink | Comments (0) | TrackBack (0)