Wills, Trusts & Estates Prof Blog

Statutory Book Released: 2021 Texas Estates & Trust Codes with Commentary

Gerry W. Beyer recently posted his book, 2021 Texas Estates & Trust Codes with Commentary, on the Wills, Trusts, & Estates Law eJournal. Provided below is the abstract of his work:

This document contains the Texas Estates Code and the Texas Trusts Code (and related Property Code provisions) showing all changes made by the Regular Session of the 2021 Texas Legislature. The changes, most of which take effect on September 1, 2021, are shown in red-lined format for easy comparison of the prior and new versions of the statutes. Also included are charts converting Probate Code to Estates Code sections and Estates Code to Probate Code sections.

I have included commentary entitled Statutes in Context to many sections. These annotations provide background information, explanations, and citations to key cases which should assist you in identifying the significance of the statutes and how they operate.

Brooklyn Law School Seeks Trusts & Estates Visitor

The following is from a posting on The Faculty Lounge originally posted by Tim Zinnecker and brought to my attention by Adam J. Hirsch (Professor of Law, University of San Diego School of Law):

Brooklyn Law School is looking for a visitor to teach one section of Trusts & Estates as an overload course in the evening of Spring 2022, in-person or remotely. Pay is negotiable. Previous experience teaching this or a similar course is strongly preferred. Email the Vice Dean at [email protected] if interested.

To get the wealthy to pay more tax, first we need to work out why they avoid it

You do not often hear rich people advocating for paying taxes. John McAfee, who in June was found dead in a Spanish prison from an apparent suicide, was "inarguably the most [colorful] character in the world of antivirus software." 

Mere hours before McAfee's death, the Spanish authorities agreed to extradite him to the US to face tax evasion charges. McAfee was openly against taxation. In 2018 McAfee tweeted, that he had not filed a US tax return in eight years because "taxation is theft" claiming he had already paid "tens of millions already and received jack [expletive] in services."

Abigail Disney, wrote in an article that she was "taught from a young age to protect [her] dynastic wealth." 

The ultra rich often use legal tax-avoidance strategies to limit their federal income tax bills. A report by non-profit ProPublica concluded that legal tax-avoidance strategies allowed the 25 richest Americans to limit their federal income tax bills to $13.6 billion in the five years to 2018 even though their wealth had been boosted by an estimated $401 billion. 

According to Abigail Disney, a big part of the problem is that wealth is not income and tax avoidance is not tax evasion. Legal tax avoidance strategies are just that—legal. Disney also acknowledged that, like Jeff Bezos, the system allows the rich legally to avoid paying tax on huge fortunes that grow every year. 

Some argue that we live in a world in which the rich do not need to practice illegal tax evasion because legal tax avoidance is "so easy and effective." Disney then posed the question: "What motivates people with so much money to try to withhold every last bit of it from the public's reach." 

Alex Rees-Jones, a behavioral economist at Wharton Business School, wrote that "analysis of tax data confirms that tax decision [the desire to pay or avoid] are influenced by loss aversion." In other words, taxpayers engage in strategies that make losses smaller and gains larger. 

From here, Rees-Jones suggested "reframing taxpayer perceptions of what constitutes a gain or a loss." 

The "fix" may be to convince taxpayers that the losses they take as a consequence of tax avoidance are worse than whatever loss they may take if they were to avoid the loopholes. 

See Rhymer Rigby, To get the wealthy to pay more tax, first we need to work out why they avoid it, Financial Times, August 29, 2021. 

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

Article: Choice of Law for Cross-Border Trust Disputes in Japan: The Case for Adopting the Hague Trusts Convention

Ying Khai Liew recently published an article entitled, Choice of Law for Cross-Border Trust Disputes in Japan: The Case for Adopting the Hague Trusts Convention, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article:

This paper argues that cross-border trust disputes cannot adequately be dealt with using the existing choice of law rules in Japan, because pigeonholing trusts within any of those established choice of law categories distorts a proper understanding of trusts law and disappoints the autonomy and legitimate expectations of parties. Ultimately, this paper suggests that serious consideration ought to be given to adopting the Convention and the dedicated trusts choice of law rules it provides.

Asset Basis and the Future of the Federal Estate Tax

The federal estate tax has been a topic of conversation for quite some time now. However, the conversation is evolving to include Basis. So what is Basis? 

Basis is typically determined based on what you paid for an asset. This can be the amount you pay in cash, the amount of debt you incur in paying for the asset, or the value of other assets or services you exchange in return for the asset. Basis is then used for tax purposes to determine your gain or loss on the later sale of the asset. It is also used to determine depreciation, amortization, depletion and casualty loses. Your basis in an asset is not necessarily stagnant. For example, it can be increased by the costs of improvements or decreased by items such as depreciation.

Basis is determined differently at death than when property is gifted during life: 

While the estate tax uses a step-up in basis, the gift tax employs what is known as carryover basis. With carryover basis when you receive a gift of an asset from someone while they are alive, you take that person’s basis in the assets^. Thus, if you later sell the property you will have the same gain on the sale that the person you received the property from would have. Looking back at our example above with the commercial real estate purchased in 1995, this means that if the owner gifted the property to his or her child in 2021 and the child then sells it for $700,000, the child would owe capital gains tax on $500,000 because he carried over the parent’s basis of $200,000, even though the property was worth $700,000 at the time of the gift. Thus, you can see how different the treatment is between assets transferred by gift versus assets transferred at death.

As of now, there are several different proposals regarding how the federal estate tax will handle basis. 

See Casey Dorman Lawson, Asset Basis and the Future of the Federal Estate Tax, Mitchell | Willams, August 17, 2021. 

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

Seeking Early Signals of Dementia in Driving and Credit Scores

Learning your odds of eventually developing dementia requires medical testing and counseling. However, everyday behavior may provide early warning signs of dementia. Examples of this everyday behavior include overlooking a couple of credit card payments, habitually braking while driving, and others. 

According to Sayeh Bayat, the lead author of a driving study funded by the National Institutes of Health and conducted at Washington University in St. Louis, "[e]arly detection is key for intervention, at the stage when that would be most effective." 

These efforts could help "identify potential volunteers for clinical trials, researchers say, and help protect older people against financial abuse and other dangers." 

Many once-promising dementia drugs have failed int rials, which researchers suggest may be due to the drugs being administered too late to be helpful. 

By identifying risks earlier, before the brain has sustained a great amount of damage, researchers could more easily find a pool of participants with "preclinical" Alzheimer's disease. Researchers could then test preventive measures or treatments.

See Paula Span, Seeking Early Signals of Dementia in Driving and Credit Scores, N.Y. Times, August 23, 2021. 

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention.  

Mega-IRAs, Boon or a Bane?

Albert Feuer recently posted an updated version of his article, Mega-IRAs, Boon or a Bane?, on SSRN. The article also appears in 49 Comp. Plan. J. No. 8, 179 (2021). Here is the abstract of this article:

Peter Thiel reportedly converted a 1999 Roth IRA investment of $1,700 in PayPal “founder’s shares,” into assets that appeared to be worth $7 billion on June 30, 2021. There are serious questions whether this IRA and other Mega-IRAs are entitled to the IRA tax benefits. The IRS should have the resources to challenge the tax exemption of any Mega-IRAs appearing to violate the current law. These Mega-IRAs will disappear when the IRS prevails. There should also be statutory changes to direct tax incentives not at Mega-IRAs and their owners, but at improving the retirement readiness of American working families. This was why traditional and Roth IRAs were introduced and why they are called individual retirement accounts. The following common-sense changes would help achieve this goal by narrowing the retirement savings focus of retirement tax incentives:

(1) All the IRAs of an individual whose traditional IRAs, Roth IRAs and designated Roth 401(k) IRAs have an aggregate value in excess of $5 million at the end of any calendar year shall be called Mega-IRAs and should lose their tax qualification if the Mega-IRAs do not distribute half of the excess by the end of the following year;

(2) All of an individual’s Mega-IRAs should lose their tax-qualification if the individual makes any contributions to any Mega-IRA for the following calendar year;

(3) The minimum required distribution rules applicable to traditional IRAs and designated Roth 401(k) IRAs should apply to Roth IRAs, i.e., annual distributions should start by April 1 of the year following the year, if any, the participant reaches age 72; and

(4) The annual excise tax for excess contribution to any IRA should be increased from 5% to 10% and should apply to the earnings associated with any excess contributions for the year at issue, rather than only to the excess contributions, as is now the case.

Louisiana morns passing of Max Nathan, an Estate Planning Titan

Although a never had the honor of meeting Max Nathan, his reputation as Louisiana's estate planning expert was widespread. It is with great sadness that I report of his passing on August 22, 2021.

To read about the career of this amazing lawyer, scholar, and teacher, I commend to you John Pope, Max Nathan, lawyer, Shakespeare scholar who found error in Louisiana law, dies at 86, Times-Picayune (Aug. 24, 2021). 

Ohio Northern University Pettit College of Law Seeks Trusts & Estates Professor

The following is from a posting on The Faculty Lounge originally posted by Tim Zinnecker and brought to my attention by Adam J. Hirsch (Professor of Law, University of San Diego School of Law):

Ohio Northern University (located in northwestern Ohio) looks to hire three entry-level tenure-track faculty members to begin teaching in 2022. The first position is Tax; this person will be expected to teach a full load of Tax courses. The second position is Property; this person is expected to teach two semesters of Property, one semester of Trusts and Estates, and a fourth course to be negotiated with the Dean. The third position is Externship Coordinator / Family Law; this person will coordinate student externships and teach two courses per year, such as Family Law and Juvenile Law. Interested applicants should reach out to Rick Bales, Chair, Personnel Committee, [email protected].

Podcast on Non-Fungible Tokens released by ACTEC

Prof. Gerry W. Beyer’s podcast entitled Non-Fungible Tokens: What Every Estate Planner Needs to Know was released on August 24, 2021 by the American College of Trust and Estate Counsel.

This podcast is available at https://actecfoundation.org/podcasts/non-fungible-tokens-estate-nft.