Wills, Trusts & Estates Prof Blog

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

Thursday, October 14, 2021

Article: Trustee Decision-making in the Australian Superannuation Context

Tobias Barkely recently published an article entitled, Trustee Decision-making in the Australian Superannuation Context, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

The Australian compulsory superannuation system contains $AUD 3 trillion in funds, which is a substantial share of the personal wealth held in Australia. This means decisions made by superannuation trustees are important for everyone in Australia, both as beneficiaries and as participants in the Australian economy. The regulation of trustee decision-making, like the superannuation system as a whole, is founded on the equitable principles of trust law, but with an extensive overlay of legislative and regulatory intervention. Examining the regulation of decision-making in this context provides important insights into foundational trust law principles as well as a major component of wealth management in Australia.

October 14, 2021 in Articles, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Wednesday, October 13, 2021

Article: Incentivizing Wills Through Tax

Margaret Ryznar recently published an article entitled, Incentivizing Wills Through Tax, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. Estate planning

There have been recent calls to loosen will formalities in order to allow more people to execute wills, the importance of which has been highlighted by the COVID-19 pandemic. The reduction of necessary will formalities can be successful in expanding the use of wills, as can potential tax incentives for creation of wills, such as a tax credit. However, there are numerous advantages to using tax to initiate change, as considered in this Article.

October 13, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Wills | Permalink | Comments (0)

Sunday, October 10, 2021

Article: Mega-IRAs, Boon or a Bane?

Albert Feuer recently published an article entitled Mega-IRAs, Boon or a Bane?, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

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.

October 10, 2021 in Articles, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Saturday, October 9, 2021

Article: Singapore Trusts Law

Christopher Hare and Vincent Ooi recently published an article entitled, Singapore Trusts Law, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. Trust

The development of an autochthonous legal system and jurisprudence in Singapore has meant that Singapore law has come a long way from its English roots. This is manifestly the case for the legal principles relating to trusts, where the efforts of our local judges, academics, lawmakers and practitioners have resulted in a rich jurisprudence that draws on the best legal thinking throughout the Commonwealth, while still retaining its own distinctive character. Developments in English law remain persuasive, although the Singapore courts have shown themselves ready to depart from these where they are inappropriate for the local context or where there are disagreements on principle. This is evident on such fundamental issues as the theoretical underpinnings of the express trust, the recognition of remedial constructive trusts and the approach to charitable trusts. Not only can legal divergence be important at a local level, but it can also give Singapore its own unique voice on the comparative and international plane.

As Singapore trusts law continues to develop, practitioners and students alike may increasingly find that scholarly works produced for the English legal market may not always accurately reflect the position adopted by Singapore’s higher courts nor advocate for policy positions that are appropriate for this jurisdiction. Accordingly, there was self-evidently the need for a textbook specifically addressing the legal principles and policies applicable to trusts in Singapore. Whilst other jurisdictions have been drawn upon in the absence of local precedent (unsurprisingly, English law still casts a rather long shadow), special care has been taken in writing this book to analyse local judicial precedents, legislation and academic writings where these are available.

This first edition of this book has been written with the syllabuses of the three local law schools in mind, focusing on the principal areas of trusts law as taught in these schools. Accordingly, the aim is that readers should find this book a helpful and accessible introduction to the principles of trusts law operating in Singapore, as it aims to lay out the fundamental concepts in a structured manner, without presuming prior knowledge of the subject matter. It is hoped that that the book may even act as useful refresher for the more seasoned practitioner and provide some additional insights in those areas where the book seeks to delve more deeply. Naturally, however, a book must be selective in its coverage. That said, it is envisioned that the book’s scope will be expanded in subsequent editions to include more detailed coverage of those areas that have greater practical significance, such as the private international law issues applicable to trusts, the use of trusts in the private client and wealth management contexts and the tax treatment of trusts. For this first edition, the authors have chosen to focus more on analysing the fundamental legal principles and theoretical foundations for trusts, rather than the myriad of issues that arise in practice. The law is stated as of 1 February 2021, although later developments have been included where possible.

October 9, 2021 in Articles, Estate Administration, Estate Planning - Generally, Trusts | Permalink | Comments (0)

The Next Step for Tax Policy Equity

Albert Feuer recently posted on SSRN his article entitled The Next Step for Tax Policy Equity. Here is the abstract of his article:

In September, the House of Representatives Ways and Means Committee released proposals requiring many employers without retirement plans to establish and automatically enroll employees in IRAs or simple 401(k) plans or in IRAs with the default contributions going to Roth IRAs. The proposals would also require a person whose employee benefit plans, Roth IRAs, and traditional IRAs have an aggregate balance greater than $10 million to withdraw at least 50% of the excess balance. Broadening those proposals to require Roth IRAs to comply with the same required minimum distribution (RMD) rules that now govern employee benefit plans and traditional IRAs, would better implement the common-sense policy of using tax incentives to encourage adequate retirement savings by focusing on retirement savings.

Roth IRAs and their participants are subject to the same RMD rules after the death of the IRA participant and the participant’s spouse, if any, as traditional IRAs and tax-advantaged pension and profit-sharing plans, including their Roth designated accounts,. Roth IRAs and their participants should also be subject to the same RMD rules during the life of the IRA participant and the IRA participant’s spouse, if any. An IRA violating those rules would lose its tax exemption, and a person failing to take a timely RMD would be subject to a 50% excise tax.

Subjecting Roth IRA participants to both the excess benefit distribution and the RMD rules would better limit the retirement tax incentives to retirement savings. Those with Mega-IRAs, such as Mr. Thiel’s multi-billion Roth IRA, could continue to receive tax incentives for reasonable-sized retirement accounts, but the tax incentives on any excess balances would be dramatically reduced. Participants with Roth or IRA accounts of any size would similarly be required to withdraw significant funds distributed during the expected life of the participant and the participant’s spouse, if any. This would permit Congress to adopt more equitable policies, such as making more funds available to encourage adequate retirement savings, such as increasing the matching savings credits to low-income tax payers who make contributions to tax-favored retirement plans above the Ways and Means proposed amount.

October 9, 2021 in Articles, Non-Probate Assets | Permalink | Comments (0)

Is This the Time to Harmonize the Required Minimum Distribution Rules?

Albert Feuer has recently posted his article entitled Is This the Time to Harmonize the Required Minimum Distribution Rules? on SSRN. Here is the abstract of his article:

In September, the House of Representatives Ways and Means Committee released proposals requiring many employers without retirement plans to establish and automatically enroll employees in IRAs with the default contributions going to Roth IRAs or in simple 401(k) plans. The proposals would also require a person whose employee benefit plans, Roth IRAs, and traditional IRAs have an aggregate balance in excess of $10 million to withdraw at least 50% of the excess balance. Broadening those proposals to require Roth IRAs to comply with the same required minimum distribution (RMD) rules that now govern employee benefit plans and traditional IRAs, would better implement the common-sense policy of using tax incentives to encourage adequate retirement savings by focusing on retirement savings.

Roth IRAs are subject to the same RMD rules, as traditional IRAs and tax-advantaged pension and profit-sharing plans, including their Roth designated accounts, after the death of the IRA participant and the participant’s spouse. They should also be subject to the same RMD rules during the life of the IRA participant and the IRA participant’s spouse, if any.

Subjecting Roth IRA participants to the excess benefit distribution and to the RMD rules would better limit retirement tax incentives to retirement savings. Those with Mega-IRAs, such as Mr. Thiel’s multi-billion Roth IRA, could continue to receive tax incentives for reasonable-sized retirement accounts, but the tax incentives on any excess balances would be dramatically reduced. Similarly, participants with Roth or IRA accounts of any size would be required to withdraw significant funds during the expected life of the participant and the participant’s spouse, if any. Such harmonization would permit Congress to make more funds available to encourage adequate retirement savings, such as providing larger savings credits to low-income tax payers who make contributions to tax-favored retirement plans than the Ways and Means proposal offers.

October 9, 2021 in Articles, Non-Probate Assets | Permalink | Comments (0)

Friday, October 8, 2021

Article: Closing Gaps in the Estate and Gift Tax Base

Daniel J. Hemel and Robert Lord recently published an article entitled, Closing Gaps in the Estate and Gift Tax Base, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

Three transfer tax minimization mechanisms—zeroed-out grantor retained annuity trusts (GRATs), intentionally defective grantor trusts (IDGTs), and family-controlled entities with steep valuation discounts—significantly shrink the federal estate and gift tax base. This white paper explains how Congress can close all three loopholes. We estimate that these actions—along with complementary base-protecting and base-expanding proposals—would raise more than $65 billion over the fiscal year 2022 to fiscal year 2031 window (and possibly much more than $65 billion). They also would enhance the progressivity of the federal tax system and bolster the long-term revenue-raising capacity of the estate and gift taxes.

To summarize key conclusions:

— Congress should repeal section 2702(b)(1), the provision that enables high-net-worth individuals to achieve extraordinary transfer tax savings via GRATs;

— Congress should harmonize the income tax and transfer tax treatment of IDGTs,
preferably by treating these trusts as nongrantor trusts for income tax purposes;

— Congress should limit lack-of-marketability discounts and eliminate lack-of-control discounts with respect to transfers of interests in family-controlled entities; and

— Congress should supplement these three reforms with additional base-protecting and base-broadening measures: shifting to a tax-inclusive base for gift taxes; limiting the gift tax annual exclusion for transfers in trust; and expanding the requirement of consistency in value for transfer and income tax purposes.

All of these steps remain relevant—and in some respects, even more urgent—if Congress enacts the Biden-Harris administration’s capital income tax reform proposal, which would limit the tax-free step-up in basis at death to the first $1 million of unrealized gains ($2 million per couple). Unless Congress secures the estate and gift tax base, high-net-worth taxpayers will respond to stepped-up basis reform by exploiting transfer-tax loopholes even more aggressively. For this reason, estate and gift tax loophole closers and stepped-up basis reform should be considered complements, not substitutes.

October 8, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Monday, October 4, 2021

Article: How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning

Beckett Cantley and Geoffrey Dietrich recently published an article entitled, How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

On April 7, 2020 the U.S. Tax Court ruled in Estate of Moore v. Commissioner, T.C. Memo. 2020-40, that certain deathbed transfers should be includible in the decedent’s estate for United States Federal Estate Tax (“estate tax”) purposes. The court applied Internal Revenue Code (“I.R.C.”) § 2036 to the transfers due to the decedent’s continued interests in the transferred property. The Tax Court stated that I.R.C. § 2036 creates “a general rule that brings back all property that a decedent transfers before he dies, subject to two exceptions.” The first exception is for bona fide sales for full and adequate consideration. The second exception is for “any property that [the decedent] transferred in which he did not keep a right to possession, enjoyment, or rights to the issue of the transferred property.” The Tax Court stated that the first exception depends on the transferor’s motivations, and that the decedent’s actions made it clear there was no bona fide sale. As a result, the Tax Court determined that I.R.C. § 2036(a)(1) applied to the transfer.

Estate of Moore is the latest in a line of cases in which taxpayers made deathbed transfers close to the date of death and the IRS successfully argued that the transferred property is includible in the decedent’s gross estate. In Estate of Bongard v. Commissioner, 124 T.C. 95 (2005), the Tax Court created a three-part test to determine whether I.R.C. § 2036 pulls property back into a decedent’s estate. In Estate of Strangi v. Commissioner, T.C. Memo. 2003-145, aff’d 417 F.3d 468 (5th Cir. 2005), the Tax Court provided additional guidance for how the court interprets I.R.C. § 2036(a)(1). In Estate of Nancy H. Powell v. Commissioner, 148 T.C. No. 18 (2017), the court builds on the rationale established by Strangi, but ultimately invokes I.R.C. § 2036(a)(2) to include the transferred assets in decedent’s gross estate. This article: (1) provides an overview of deathbed transfers case law; (2) describes typical such deathbed transfers; (3) outlines the I.R.C. § 2036 statute; (4) discusses the main seminal cases in the area of deathbed transfers, including Estate of Bongard, Estate of Strangi, Estate of Powell, and Estate of Moore; (5) synthesizes the case law on I.R.C. § 2036 and analyzers policy considerations regarding such law; and (6) concludes with a summary of the article’s findings.

October 4, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

Friday, October 1, 2021

Article: Prepaid Death

Victoria J. Haneman recently published an article entitled, Prepaid Death, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Deathcertificate

The cost of an adult funeral exceeds $9,000. Funerals are expensive and death is not considered an appropriate time to bargain shop. The consumer is generally inexpert and vulnerable due to bereavement. Decisions are often time-pressured and perceived as irreversibly final. Accordingly, the death care industry benefits both from information asymmetry and etiquette uncertainty. Protecting the bereaved consumer calls for reversing the current norm of at-need (after death) purchasing in favor of pre-need (before death) planning and prepayment. Due to excessive influence of the industry over its state regulators, referred to as regulatory capture, current pre-need prepayment instruments are so deeply flawed that conventional wisdom recommends against prepayment. This Article borrows from nudge theory to shape an intervention that will correct unfairness and inefficiency in an imperfect market, in a way that deftly sidesteps an all-out attack on the industry itself. The proposed paradigm shapes an incentive that allows the consumer to pay for pre-need death care service with pre-tax earnings through Internal Revenue Code Section 125 and flexible spending account principles. Untangling regulatory capture becomes unnecessary: federal tax-sheltering of pre-need prepayment dollars will generate consumer demand for reliable and qualified pre-need prepayment financial instruments. This increased demand for pre-need instruments will, in turn, provide an incentive for funeral providers to offer the attractive terms necessary to compete for this new base.

October 1, 2021 in Articles, Death Event Planning, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)

Wednesday, September 29, 2021

Article: Dilution of the Doctrine of Survivorship

Sarthak Sharma recently published an article entitled, Dilution of the Doctrine of Survivorship, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

The doctrine of survivorship was a model of property division, prevalent in the Mitakshara school of thought under Hindu legal traditions. It was a heavily patriarchal system which essentially mandated the division of the estate solely among the male claimants, terming them as coparceners. This selective exclusion of female descendants and disqualification of legal heirs’ claim in their ancestral property was gradually diluted and ultimately abolished via a series of legislations and amendments, providing females a greater equitable claim, a guaranteed share and a set of complimentary rights. This article documents this process and its impact, via examples of important cases and critical outlook of the currently persisting issues in the much-transformed doctrine.

September 29, 2021 in Articles, Estate Administration, Estate Planning - Generally | Permalink | Comments (0)