Wills, Trusts & Estates Prof Blog

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

Saturday, March 26, 2011

IRS Targets Intra-Family Real Estate Transfers

IRS The IRS is on a national hunt for gift tax evaders, and California is its latest target. The IRS wants a California state tax agency to turn over its database of all the individuals who transferred real estate to relatives from 2005 to 2010 for little or no consideration. The California BOE balked at voluntary cooperation, so the IRS filed a lawsuit in federal court in Sacramento called In the Matter of the Tax Liabilities of John Does. No action has been taken on the request yet.

The IRS nearly admits that it is going on a fishing trip for John Does. However, it considers it to be in well-stocked waters as evidenced by the widespread noncompliance in 15 other states that have already been targeted. Gift tax returns were filed 0% of the time in Ohio and 10% of the time in Virginia and Florida. Other states that gave up this data include: Connecticut, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.

See William P. Barrett, IRS Targets Family Real Estate Transfers, Forbes, Mar. 24, 2011.

Special thanks to Janet Novack (Executive Editor, Forbes Media LLC) for bringing this to my attention. 

March 26, 2011 in Gift Tax, New Cases | Permalink | Comments (0) | TrackBack (0)

Friday, March 25, 2011

Inheritance Tax Changes in England

England and Wales England currently has a 40% inheritance tax (IHT) on all estates above £325,000. The chancellor recently announced plans to lower the IHT on estates beginning in April 2012 to 36% if at least 10% of the estate is left to charity.

Donors now face the issue of whether to wait to make all charitable donations at death or to benefit from Gift Aid on lifetime donations. Figures calculated by KPMG show that higher-rate taxpayers may benefit more from leaving lump sums to charities at death rather than pay it in installments over a 10-year period. However, charities would benefit more from lifetime gifts.

Richard Proctor, a tax partner at Grant Thornton, says that this is “good news for family solicitors and will writers” because “[p]eople will need to rewrite their wills.”

Alice Ross, Estates that Donate Attract Lower IHT, FT.com, Mar. 23, 2011.

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

March 25, 2011 in Estate Tax, New Legislation, Wills | Permalink | Comments (0) | TrackBack (0)

Elizabeth Taylor Requested Her Funeral to be Delayed 15 Minutes

Elizabeth Taylor Elizabeth Taylor was laid to rest on Thursday at a private funeral at Forest Lawn Memorial Park in Glendale, CA. The funeral began fifteen minutes after its scheduled start time as per her request. Taylor, a Hollywood original to the end, wanted to be late for her own funeral.

Taylor died at age 79, leaving behind four children and ten grandchildren. A public service in her honor will be held at a later date.

See Mike Fleeman and Elizabeth Leonard, Elizabeth Taylor’s Funeral Delayed 15 Minutes at Her Request, People, Mar. 24, 2011.

March 25, 2011 in Death Event Planning, Estate Administration | Permalink | Comments (0) | TrackBack (0)

In Japan, Tradition Collides with Hasty Burial of the Dead

Japan graves In Japan, cremation is nearly universal and an important rite deeply rooted in Buddhism. But across the northeast coast of Japan, tradition has collided with mathematical reality. The number of missing and dead from the March 11 tsunami is now over 22,000, and there are far too many bodies to burn in the small towns where most people died.

Highasi-Matsushima, a seaport of 43,000 people, has already recovered 680 bodies and 500 more are missing. The town’s crematory can only accommodate four bodies a day. Reluctantly, the town has resorted to burial. On property that used to house the city garbage incinerator, long, narrow trenches were dug and partitioned into graves with pieces of plywood.

The government and families are trying to make the most of the situation. Each coffin is carried by six silent soldiers and rested with military precision and a silent salute. Friends and relatives bring what little flowers or gifts they have and light incense. Later, Buddhist monks come to the site and pray over the graves.

See Michael Wines, As Tsunami Robbed Life, It Also Robs Rite of Death, N.Y. Times, Mar. 23, 2011.

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

March 25, 2011 in Current Events, Death Event Planning | Permalink | Comments (0) | TrackBack (0)

Choosing Whether to Pay the Estate Tax or Capital Gains Taxes for 2010 Decedents

Estate Tax The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enables executors of decedents’ estates to choose between paying the estate tax at the 2011 rates or paying no estate tax but giving up a step-up in basis on inherited assets (for decedents who died in 2010). While many people would think that the choice between the two is easily resolved with a quick computation of what would be the cheapest, there are other important factors that need to be taken into consideration.

First is the consideration of certainty. The 35% estate tax is a known amount that is due at a known date. The capital gains route requires the additional questions of when the asset will be sold, how it will be valued at that time, and what the tax rate will be at that time.

Second, it is common today to have blended families, second families, or even third families. When beneficiaries are provided for differently, the executor may be in a bind when one group wants him to choose one scheme while the other wants him to choose another scheme.

Other factors to take into consideration include:

  • Application of state statutes to interpret formula provisions and terminology used in Wills 
  • Whether electing into the no estate tax regime affords an opportunity to reduce or avoid estate tax at the death of the surviving spouse, by avoiding the need to make a QTIP election for a marital trust
  • The size of the separate estate of the surviving spouse
  • Whether the estate assets are subject to depreciation recapture, so that potential tax arising from a lower basis is not just a function of capital gains rates but also ordinary income tax rates

Michael Roberts, Estate Tax Strategies and the New Tax Code: Embracing Occam’s Razor, Financial Planning, Mar. 23, 2011.

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

March 25, 2011 in Estate Administration, Estate Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

Thursday, March 24, 2011

Rocky Road Ahead for Family Business Succession Planning

Business succession Wealth managers with clients who are business owners may need to prepare for some rough transitions. Approximately 27% of family-owned businesses around the world expect to change hands within five years, but 47% have no succession plans in place. People don’t like dealing with their mortality, so the lack of succession planning isn’t all that surprising.

Wealth managers need to remind their business-owning clients to divorce their emotions from their logic when it comes to succession planning. Many entrepreneurs leave their business to their children regardless of what’s actually best for the company, the owner, and the children. They don’t even think to explore their options.

Another dangerous area in succession planning arises when some children are involved in the business while others aren’t. The parent wants to treat children equally, but giving ownership stakes to all children regardless of involvement is a recipe for disaster. Owners in this situation should develop wealth outside of the company or purchase life insurance policies for the benefit of non-involved children.

Another succession problem arises due to the recession. Many owners who planned to turn their business over to their children cannot afford to do so. Owners who plowed their wealth back into the business rather than paying themselves may not have enough saved for retirement. Further, owners may not even be able to pull out wealth from the company if it is now cash-starved. These owners have to stay on the payroll, which may damage the next generation’s opportunities.

When an economy is struggling, the tension level in family businesses is “exponentially” higher than in other companies whose ownership is more emotionally removed from the enterprise, says Paul Karofsky, owner of Transition Consulting Group in Framingham, Mass. “In families, it’s about unconditional love, it’s about equality, it’s about everyone taking care of everyone else. In business, it’s about performance, it’s about how well we do,” Karofsky says. “When you take those two different value systems and put them together, you have fodder for instant conflict. Now add a struggling economy, and you’re really putting a lot of pepper into the mix.”

Jerry Gleeson, Succession Not Succeeding for Family Business, Registered Rep, Mar. 22, 2011.

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

March 24, 2011 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Judge Rules You Can't Opt Out of Medicare Without Losing Social Security

Medicare Three retired federal employees who have now reached age 65 brought suit because they wanted to drop their Medicare Part A coverage without losing their Social Security benefits.

On March 16, Judge Rosemary Collyer of the U.S. District for the District of Columbia dismissed Hall v. Sebelius, claiming that the retirees cannot “dis-enroll” from Medicare Part A without losing Social Security benefits and also refunding all previous benefits paid to them. She acknowledged that the law does not specifically say that this should be the result, but congressional intent does. Congress enacted the 1965 law that created Medicare to provide ‘mandatory’ benefits under Medicare Part A for individuals receiving Social Security benefits.  The plaintiffs plan to appeal.   

This ruling could have implications for the cases currently challenging the individual mandate in the health reform law. Those plaintiffs argue that it is illegal for the government to compel citizens into economic activity, but Judge Collyer’s ruling suggests that the government has already been doing this for 46 years in the area of health care.

See You Can’t Opt Out of Medicare Without Losing Social Security, Judge RulesElderLawAnswers, Mar. 22, 2011.

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

March 24, 2011 in Disability Planning - Health Care, Elder Law, Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Will William and Kate be the First British Royals to Sign a Prenup?

William and Kate There is no evidence that any British royals have ever signed a prenuptial agreement before, but Will and Kate could possibly be the first. Some reasons why they could be tempted to sign one include:

  • The Supreme Court recently took a significant step to guide prenups into English law
  • A prenup would provide privacy and confidentiality for the royal business
  • Kate is the first “commoner” to marry an heir to the throne since 1660, and her parents are mere business millionaires

See Afua Hirsch, William and Kate—The Prince, the Princess and the Prenups, guardian.co.uk, Nov. 17, 2010.

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

March 24, 2011 in Current Events, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

UBS' New Dress Code

UBS Banking giant UBS recently garnered attention for its involvement in a tax fraud investigation. Now it is receiving attention for something entirely unrelated: its new dress code. In a 44-page document, UBS directs that female employees wear flesh-colored underwear and places tough restrictions on sock colors. It further specifies when to apply perfume and to avoid smelly foods for lunch, among many other rules.

See Carolin Schober, Wear Flesh-Colored Underwear, UBS Tells Employees, CNBC, Dec. 15, 2010.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

March 24, 2011 in Humor | Permalink | Comments (1) | TrackBack (0)

Wednesday, March 23, 2011

New Hampshire Tries to Attract Trust Companies

New Hampshire has been working hard to establish itself as a trust company destination by passing trust-friendly legislation. New Hampshire now has the flexibility of South Dakota and all the qualities that could qualify it as a top-tier trust state, but the state needs to do a better job of marketing itself if it wants to compete with Delaware. Thus far, Boston banks and law firms have been the first to move into New Hampshire. The Trust Advisor created the following chart to compare the trust environment for Delaware and New Hampshire:

New Hampshire 
Scott Martin, New Hampshire Sets Sights on Becoming the New Delaware of the East, The Trust Advisor Blog, Nov. 13, 2010.

March 23, 2011 in New Legislation, Trusts | Permalink | Comments (0) | TrackBack (0)