Wills, Trusts & Estates Prof Blog

Limits on Tax-Free Lifetime Gifts Increase

The Internal Revenue Service has raised the limit on tax-free transfers during life or at death.  Beginning in 2015 that amount, known as the basic exclusion, will increase to $5.43 million per person, up from $5.34 million this year.  This announcement, in Revenue Procedure 2014-61, indicates there will be no change in the annual exclusion, allowing you to give $14,000 in cash or other assets each year to as many individuals as you want without using the basic exclusion. 

The lifetime gift tax exclusion and the estate tax exclusion are expressed as a total amount and it is possible to use this basic exclusion to transfer assets at either stage or a combination of the two.  If you exceed the limit, you or your heirs, will owe up to 40%. 

For people who had previously used this basic exclusion have the option to top off with an additional $90,000 available for tax-free gifts next year.  Another way to use this extra exclusion amount is to benefit a descendant who was born after your initial planning, and is therefore not a beneficiary of earlier gifts. 

Although these decisions apply to just a portion of the population, these rules now apply to same-sex married couples.

See Deborah L. Jacobs, IRS Raises Limit On Tax-Free Lifetime Gifts for 2015, Forbes, Oct. 30, 2014.

Article on Donor Standing and Higher Education

Nicole Amaya Watson recently published an article entitled, The Issue of Donor Standing and Higher Education: Will Increased Donor Standing be Helpful or Hurtful to American Colleges and Universities? 40 J.C. & U.L. 321-358 (2014).  Provided below is the article’s abstract:

The article offers information on the legal significance of donor standing, which includes charitable donations made to colleges and universities in the U.S. It discusses the judicial transparency and differences in various types of charitable donations among various jurisdictions of the U.S. It analyzes the effects of increased donor standing that enforces charitable gifts to colleges and universities. 

$44 Million Legal Bill Upheld

The top appeals court in New York has granted a $44 million bill for legal work that lasted less than five months, rejecting an argument that lawyers for a real estate entrepreneur’s wealthy widow had a “Svengali-like influence” on her.

The New York Court of Appeals also ruled that Graubarb Miller lawyers do not have to return $5 million in gifts they received from Alice Lawrence, saying this claim was made too late.

Taken up by Alice Lawrence’s estate after her death in 2008, the battle over the $44 million legal bill concerns a contingency-fee arrangement that she entered into with the Manhattan law firm.  The battle centered around the executor of her husband’s estate and control of his real estate holdings. 

In hopes of saving money, Lawrence agreed to pay the firm 40 percent of any future recovery.  Within five months, the litigation settled for $111 million.  Flabbergasted at paying Graubard the $44 million fee, new litigation ensued.

Yet, in reversing the Appellate Division ruling, the Court of Appeals said Lawrence was bound by the agreement, “She was a competent and shrewd woman who made a business judgment that was reasonable at the time, but which turned out in retrospect to be disadvantageous.”

See Martha Neil, Top NY Court Says Widow’s Estate Must Pay Lawyers $44M for Less Than Five Months’ Work, ABA Journal, Oct. 29, 2014. 

Leaving Behind Digital Assets

Until recently, estate planning meant doling out items such as cash and securities, tangible personal property, jewelry and collectibles, and intangible assets like patents or shares.  Now there is a new category that must be addressed known as “digital assets.”

Digital assets refer to the footprints we leave behind as we increasingly live our lives online.  Many of us have digital assets in the form of e-mails, family photos, social media, and online bank accounts. 

While managing all the passwords and leaving records of them for your loved ones is confounding, there are two other issues.  The first issue is whether these assets are even transferrable.  For example, when you download iTunes, e-books and audiobooks, you are only receiving a life estate, which is the right to use something while you are alive, but not to pass it on to your heirs. 

The other problem centers around whether you can lawfully give other people access to your accounts.  A large portion of estate planning is appointing an individual to act on your behalf if you become disabled or die.  These people, known as fiduciaries, should have access to these accounts.  However, user agreements generally prohibit this since companies fear violating federal privacy laws.

Users should put precautionary measures in estate planning documents to give their fiduciaries access to the accounts.  This wording should go into a person’s will, living trust, and durable power of attorney. 

See Deborah L. Jacobs, The Digital Footprints That We Leave Behind, Forbes, Oct. 31, 2014. 

Retirement Plan Considerations When Changing Employers

For individuals changing careers or moving to a different job, the retirement account with the previous employee is often either cashed out, which results in losing some of the funds to taxes, or moved to another retirement account. However, sometimes going against instinct and leaving the retirement account with the previous employer may be best. Here are three situations that may warrant additional consideration for if keeping the previous employer retirement account will be beneficial:

1. The plan is simply lower-cost and higher benefit than the retirement plan offered by the new employer.
2. When keeping the 401(k) will provide more benefit than rolling over to an IRA, such as the ability for those age 55 to 59.5 to withdraw without penalties from a 401(k).
3. When the previous employer plan includes company stock, which has favorable tax benefits.

See Dan Caplinger, 3 Reasons to Stick With Your Ex-Employer’s Retirement Plan, Daily Finance, Oct. 17, 2014.

Future Changes to State Estate Taxes

Some states that have a state estate tax have enacted laws that create continuing change the estate tax over the coming years. These changes are primarily an increase the exemption amount or to move toward repeal of the estate tax completely. Here are some changes to state law that will play out over the next few years and act to reduce estate taxes for their residents:

• Tennessee: Moving toward complete repeal of the state estate tax in 2016, and incrementally increasing the exemption amount
• Maryland and New York: Increasing state estate tax exemption till it meets and follows the federal exemption in 2019
• New Jersey: Multiple bills introduced to repeal the state’s estate and inheritance tax, or increase the exemption

See Juliette Fairley, Changes in State Law to Impact Estate Planning in 2015 and Beyond, Main Street, Oct. 17, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Book on Federal Gift, Estate, and Generation-Skipping Transfer Taxation of Life Insurance

Lawrence Brody & Mary Ann Mancini published the third edition of their book entitled, Federal Gift, Estate, and Generation-Skipping Transfer Taxation of Life Insurance. Provided below is a description of the book from ABA:

This concise primer will guide you in minimizing the transfer tax of an estate plan and avoiding the pitfalls that can occur. The authors discuss gift tax issues, estate taxation of life insurance, generation-skipping transfer tax and its application to life insurance and irrevocable life insurance trusts, community property considerations, and more.

Now updated and completely revised, this volume in the popular Insurance Counselor series will help you take full advantage of minimizing the transfer taxation of the estate plan as well as avoid the many pitfalls that can arise. The first chapter deals with life insurance as a gift, informing you about the valuation of policies and their qualification for the gift tax annual exclusion. Among the areas discussed are:

• Outright transfers, transfers in trust, indirect gifts
• The uses and issues relating to Crummey powers
• The gift tax marital deduction

Further issues discussed in the second chapter are the gift tax, including consideration of cases when a gift occurs with respect to a life insurance policy, the valuation of the gift, and the availability of the gift tax annual exclusion and the gift tax charitable or marital deduction. The third chapter deals with the estate taxation of life insurance, with emphasis on the two IRC sections that have particular application to life insurance: sections 2035 and 2042. The fourth chapter discusses the generation-skipping transfer tax and its application to life insurance and irrevocable life insurance trusts, while the final chapter specifically addresses important community property considerations.

CLE on SCINS and Private Annuities

The ABA Section of Real Property, Trust and Estate Law is presenting an eCLE entitled, SCINS and Private Annuities: Using Bet-to-Die Estate Planning Techniques, Thursday, November 20, 2014, 1:00 – 2:30 p.m. ET.  Here is why you should attend:

Advanced estate planning often includes leveraged sales in order to maximize the transfer of wealth to the next generation. Rather than always using a traditional promissory note, it is often beneficial to structure the payments using a SCIN or a Private Annuity. Both of these options are considered bet-to-die techniques because the payments generally stop upon the transferor's death.

In this program, the presenters will illustrate the advantages of using these payment options and why they can substantially increase the wealth transfer in comparison to using a traditional promissory note. Attendees should leave this presentation with a greater understanding of the various payment options, including an understanding of why each option might be selected for a given fact pattern.

Happy Halloween!

Many law school classes have one or more holidays which are especially relevant.  For example, Family Law has Valentine's Day, Mother's Day, and Father's Day, Labor Law has Labor Day, Environmental Law has Earth Day, Military Law has Memorial Day, and Law and Religion has Christmas, Hanukkah, Ramadan, etc.

Halloween, with its fascination with death, may be the most relevant holiday to those of us interested in wills, trusts, estates, probate, and estate planning.

So, however you celebrate, have fun and be safe!

Planning for Special Needs

For families caring for those with special needs, estate planning takes time and thoughtful consideration.  With advances in care and modern medicine, individuals with special needs live longer, healthier lives, making planning more important than ever. 

Once you begin planning for your loved one’s future, keep these documents on hand with your estate planning records:

• Legal papers. These include birth certificate, Social Security Card, and health insurance cards. 
• A letter of intent. This provides future caregivers important information about your child.  It can relay information about care needs, food preferences, and other day-to-day information. 
• Your advance health care and financial directives. Powers of attorney and living wills can save loved ones time and heartache should you become incapacitated.
• Information regarding assets. Create a list of all your major assets and include account numbers and contact information for your banker, broker, and insurance agent.
• Copies of special needs trusts. Having a copy of these documents will protect the assets intended for your special needs child.  Include information about where the original document is kept and who should be contacted when it is needed.
• Guardianship documents. This will help expedite the process of obtaining guardianship to include these documents. 
• Government benefits. Include a list of government benefits your child receives and copies of the application forms.  This will help future guardians when applying for benefits.

See Richard Newman, Special Needs Planning: Important Documents to Keep on Hand, Examiner, Oct. 30, 2014.