Wills, Trusts & Estates Prof Blog

New Tax Plan: Here’s What You Should Know

The passage of the Tax Cuts and Jobs Act represents the most sweeping tax code revision in decades. Most of its provisions will take effect in January of 2018, with many expiring after 2025 and none effecting taxpayers’ 2017 tax returns. Some of the major provisions are: 1) a change in tax brackets, 2) an increased standard deduction, 3) the reduction or elimination of some itemized deductions, 4) an increase in the child tax credit, 5) the elimination of the dependent deduction and personal exemption, 6) a change to the Alternative Minimum Tax, 7) changes to the treatment of income generated by pass-through entities, and 8) a lower corporate tax rate. It is important for investors to remain resolute in the face of these substantial changes and to remember the effect on personal tax liability depends upon individual circumstances.

See Hayden Adams, New Tax Plan: Here’s What You Should Know, Charles Schwab, December 20, 2017.

Michael Jackson Estate May Avoid Penalties in IRS Dispute

Representatives of Michael Jackson’s estate claimed the rights to his name and image were only worth $2,105. They argued that allegations of skin bleaching, child molestation, drug abuse, and an obsession with plastic surgery had driven down the value to almost nothing. The IRS disagreed, claiming Jackson’s image and name should have been valued at closer to $434 million. The IRS sought to rectify the issue by asking U.S. Tax Court Judge Mark Holmes to allow them of offer additional evidence in the case. Fortunately for Jackson’s estate, the IRS failed to adhere to procedural requirements, preventing them from seeking any penalties for understated taxes. In his December 20th order, Holmes asked, “What happens if a party with the burden of production on an issue fails to introduce sufficient evidence at trial to meet that burden?” His terse but accurate reply: “Well, he loses.”

See Edvard Petersson, Michael Jackson Estate May Avoid Penalties in IRS Dispute, Bloomberg, December 28, 2017.

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

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

Article on Creditors' Claims Against Trustees and Trust Funds

Aleksi Ollikainen recently posted an Article entitled, Creditors' Claims Against Trustees and Trust Funds, Wills, Trusts, & Estates Law eJournal (2017). Provided below is an abstract of the Article:

As the trustee is the legal owner of the trust assets and the only relevant legal person, any creditor access to trust funds must be through him. But the only right of access the trustee has is through his indemnity. Therefore, creditor access is dependent on this indemnity right. If anything severs that indemnity, creditor access is lost. This creates a substantial practical problem, namely that an unconnected breach of trust can destroy creditor access. This article aims to give a relatively detailed introduction to the law of trust creditors, and suggest a solution to the problem of unconnected breach.

Tax Changes Are Coming on Monday: Here’s When It Will Affect You

A number of changes borne of the updated tax code are slated for delivery on Monday. The bill adds exemptions and makes cuts to the corporate, individual, and international tax rates, but only a few of these provisions are actually permanent. The individual tax cut, an increased exemption for the alternative minimum tax, a doubled exemption for estate taxes, and the expanded child tax credit all go into effect on Monday and they all expire by 2025. Starting in 2019, alimony payments will no longer be deductible for newly-divorced couples and the individual mandate for the Affordable Care Act will be repealed. Finally, beginning in 2022, companies may no longer immediately write off their entire research and development expenses. Instead, companies will have to spread those costs over a span of five years.

See Michael Sheetz, Tax Changes Are Coming on Monday: Here’s When It Will Affect You, CNBC, December 28, 2017.

The Charms and Dangers of the Charitable Remainder Trust

The charitable remainder trust (CRT) has long been a popular planning vehicle for individuals interested in leaving something to charity. The CRT helps reduce the cost of giving and can also serve as a tax shield for highly-appreciated assets. A common example, elderly couples can utilize the CRT to sell their homes, downsize, and avoid capital-gains taxes. While these vehicles can be extremely useful, some variants have the potential to blow up in an investor’s face. Violations of rules restricting payouts or requiring certain levels of assets to be held in the trust can lead to extremely severe tax consequences to the settlor. For this reason, it is important to discuss the different variations and drawbacks of CRTs with your financial planner or lawyer.

See Matt Miller, The Charms and Dangers of the Charitable Remainder Trust, Barron’s, September 22, 2017.

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

CLE on Frequently Used Trusts for Estate and Financial Planning

The National Business Institute is holding a conference entitled, Frequently Used Trusts for Estate and Financial Planning, which will take place on Thursday, January 25, 2018, at the Hyatt Place San Jose/Downtown in San Jose, CA. Provided below is a description of the event:

Program Description

Understand the Most Common Trust Structures, Their Various Uses and Tax Effects

Understand the underlying structures and functions of the key estate planning tools used to protect and transfer clients' assets. Whether you're a beginner or are in need of a refresher, this essential course will leave you with useful and practical tips from the pros. Register today!

• Clarify the tax uses and consequences of the various trust structures.
• Distinguish between testamentary and revocable trusts.
• Explore the most tax-efficient tools for specific client circumstances.
• Determine when an irrevocable trust is a better option.
• Understand the varied powers and duties of the trustee depending on the trust structure.
• Learn how special needs trusts are used to provide for daily expenses without risking benefits eligibility.
• Protect your practice and professional reputation with a tailored ethics guide.

Who Should Attend

This basic level seminar is designed for:

• Attorneys
• Accountants and CPAs
• Trust Officers
• Tax Professionals
• Paralegals

Course Content

1. Trusts Overview: Main Rules, Terms, Parties, Goals Identified
2. Revocable Trusts: A Versatile Tool for Every Occasion
3. Irrevocable Trusts: Tax Savings and Asset Protection
4. Special Needs Trusts: Funding Long-Term Care
5. Ethics and Trusts

Continuing Education Credit

Continuing Legal Education – CLE: 6.00 *

International Association for Continuing Education Training – IACET: 0.60

National Association of State Boards of Accountancy – CPE for Accountants/NASBA: 7.00 *

* denotes specialty credits

Clawback Under New Tax Law

In 2012, the Senate introduced a bill designed to address problems caused by the constantly shifting estate and gift tax thresholds. Despite the potentially severe consequences this issue can cause for an individual taxpayer, under the new tax law, the Senate allows the IRS to handle the problem rather than adopting language from the 2012 bill. A possible reason for failing to adopt the provision is that the 2012 bill language may have been too insubstantial. If the 2012 bill language had been adopted, it would be possible for a taxpayer to distribute $11 million to his children while alive and then die in 2026, when the exclusion amount has reverted to an inflation-adjusted $5.5 million, with no estate tax consequences. But, if the same taxpayer had given his children $5.5 million while living and subsequently passed away in 2026 with a $5.5 million estate, he would be subject to a 40% estate tax. At face value, this system appears unbalanced and likely deserves more consideration.

See James G. Blase, Clawback Under New Tax Law, Wealth Management.com, December 27, 2017.

Strife After Death

Only one in every ten wills is ever contested. But, these odds increase dramatically when the decedent’s estate contains significant wealth. When high-net-worth individuals are laid to rest, friends and family begin to discover the inherent unfairness in the decedent’s final disposition of assets. In some cases, legal battles and fighting can tear families apart while the estate lawyers reap the benefit of the discord.

Baseball legend Ted Williams is an unfortunate paradigm of such post-mortem bickering. His will provided for his remains to be cremated and then scattered in the Florida Keys. His son and daughter from his third marriage presented the court with a signed note saying that their father wanted to be frozen in case scientific progress might someday bring him back to life. As of today, Williams’s severed head and body await reanimation in Arizona.

See Ian T. Shearn, Strife After Death, Financial Advisor, December 15, 2017.

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

‘Grey’s Anatomy’ Doctor Kevin McKidd Officially Divorced: Massive Child and Spousal Support Obligations

Kevin McKidd, Grey’s Anatomy star, is officially divorced from ex-wife, Jane. As these things often go, McKidd’s new bachelor status comes at a high price. The couple will share custody of their two children, ages 15 and 17, under an agreement where they will rotate in and out of the family home. As for costs, McKidd has agreed to pay $22,440 per month in child support, $65,096 per month for spousal support, and 20% of any income earned above $3 million.

See ‘Grey’s Anatomy’ Doctor Kevin McKidd Officially Divorced: Massive Child and Spousal Support Obligations, TMZ, December 27, 2017.

An Everlasting Love Nest: Hugh Hefner Gets His Headstone in LA Cemetery Next To His First Magazine Cover Girl Marilyn Monroe

Hugh Hefner died in late September after he contracted a strain of E. coli that was resistant to antibiotics. Just in time for Christmas, his headstone was affixed to his grave marker at the Westwood Village Memorial Park Cemetery. His final resting place happens to sit next to Playboy’s 1953 inaugural cover girl, Marilyn Monroe. Hefner purchased the spot next to Monroe in 1992 at a cost of $75,000.

See Snejana Farberav, An Everlasting Love Nest: Hugh Hefner Gets His Headstone in LA Cemetery Next To His First Magazine Cover Girl Marilyn Monroe, DailyMail.com, December 25, 2017.