Wills, Trusts & Estates Prof Blog

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

Tuesday, May 26, 2020

Tactics for Stretching Retirement Assets Under the SECURE Act

UnnamedOn December 20, 2019, President Trump signed into law The Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Act has many provisions related to financial planning, with a focus on retirement planning with IRAs and employer-sponsored plans. One of the more attractive provisions under the Act is the curtailing of "stretched" inherited retirement assets. 

Generally in a stretch arrangement, one spouse will retire with a retirement account, which would be tapped during their lifetime and the balance would then be left to a surviving spouse. The surviving spouse would then draw down the account and eventually leave what is left to their children or other beneficiaries. The ultimate heirs or beneficiaries would then have the opportunity to spread required minimum distributions (RMD) over their life expectancies, which could possibly lead to years of untaxed compounding and substantial wealth accumulation. 

The SECURE Act eliminates the stretch for most beneficiaries, but keeps the opportunity intact for the plan participant's surviving spouse. Also, disabled and chronically ill beneficiaries can still take advantage of the stretch in regard to RMDs. 

The IRS has just recently released new life expectancy tables for distributions beginning in 2021, which designated beneficiaries will be able to use. Compared to 2019, the life expectancy is longer, which means fewer RMDs each year, a potentially smaller tax on those RMDs, and more funds left in the IRA for continued compounding. 

The SECURE Act applies to the retirement accounts of individuals who die in 2020 or later. The accounts of people who have died before 2020 will fall under the old rules until the beneficiary dies.

Under the SECURE Act, those planning for retirement have the opportunity to choose from a number of tactics to find what fits their financial scheme.

See Sidney Kess & Julie Welch Tactics for Stretching Retirement Assets under the SECURE Act, The CPA Journal, April, 2020. 

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

May 26, 2020 in Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Article on COVID-19 Relief for Retirement Benefits

Albert Feuer recently published an article entitled, COVID-19 Relief for Retirement Benefits: Open Issues, Wills, Trusts, & Estates Law eJournal Retirement_clock_kxdswo(2020). Provided below is the abstract to the Article.

The CARES Act provides cash flow relief for “qualified individuals” with savings and retirement benefits by enhancing provisions for direct loans and indirect loans (repayable distributions) of those individual’s benefits. IRS Notice 2020-23 similarly extends due dates for pension plan loan payments and for completing rollovers of distributions, but such relief is available to all participants and beneficiaries rather than being restricted to “qualified individuals,” but many seem unaware of this relief, particularly the deferral of loan due dates.

However, despite recent IRS and DOL guidance there are still major outstanding issues preventing Covid-19 victims from obtaining better access to their own accrued benefits, when they are most in need of such access, and may impose undue compliance costs or risks on plan sponsors and administrators. Plan administrators, participants, and beneficiaries have the following needs:

• many individuals who have suffered adverse financial consequences from Covid-19 need an expansion of the set of factors defining “qualified individuals” so they may take advantage of the CARES Act relief;

• plan administrators need to understand their responsibilities and authority to make “qualified individual” determinations;

• plan administrators need to understand their fiduciary responsibilities with respect to CARES Act cash-flow relief, particularly their disclosure obligations;

• plan administrators, participants, and beneficiaries need to understand their rights and options with respect to the deferral of plan loan dues dates available under IRS Notice 2020-23 until July 15, 2020 and under the CARES Act for one year;

• plan administrators, participants, and participants need to understand when participants and beneficiaries may choose to avoid income tax withholding on plan distributions;

• plan administrators, participants, and beneficiaries need to understand the circumstances under which participants and beneficiaries may repay distributions to an eligible retirement plan (which includes IRAs) or plans within three years of receipt of such distribution; and

• plan administrators, participants and beneficiaries need states to amend their tax laws to avoid undue interference with the cash-flow relief that the CARES Act makes available to participants and beneficiaries of eligible retirement plans. 

May 26, 2020 in Articles, Current Events, Estate Planning - Generally, New Legislation | Permalink | Comments (0)

Monday, May 25, 2020

Arizona man's epic obituary goes viral: 'The party will never be the same'

Aec33da0-9b19-11ea-99ff-7853a5cc5e08Randall Jacobs ("RJ"), who passed away on May 4 at the age of 65, was seemingly, "one hell of a guy" given his colorful obituary that was posted in a Phoenix newspaper. The obituary was posted on twitter and has received over 116,000 likes, 17,000 shares and over a thousand comments. Needless to say, it has gone viral. Many of the twitter users that saw the obituary commented that they wished they had met this man, whom they referred to as a "legend" and "rare man." 

The obituary mentioned that Randall's friends called him RJ, while his family and those close to him called him Uncle Bunky or "The Bunkster." The tribute paints a colorful image of RJ's life; he lived his life fearlessly in a way "that would have sent a lesser man to his grave decades earlier." RJ was known for his one-of-a-kind personality that drew people towards him and rarely pushed them away. He was known as a gentle soul. 

Given the hundreds of users that sent their condolences from across the country, it is obvious that "The Bunkster" had a colossal impact on everyone, even those he did not meet.

Rest in Peace, Uncle Bunky.

See Janine Puhak, Arizona man's epic obituary goes viral: 'The party will never be the same', Fox News, May 22, 2020. 

May 25, 2020 in Current Events, Estate Planning - Generally | Permalink | Comments (0)

Five Common Financial Mistakes To Avoid During The Pandemic

E38c33e7-b470-4a69-9fe5-38cdb7a90350The effects of COVID-19, although strange, are real. Many Americans are financially unprepared, despite their economic status; whether someone is poor, rich, or in between, COVID-19 has put the world into a panic, especially America. The good news is, with all of the time you have to spend at home, you can finally address the financial projects that you have been putting to the side. If you do decide to tackle your financial projects, you should be made aware of these five common mistakes that people make during the global crisis.

Mistake 1: Making Emotional Investment Allocation Decisions

If your balance goes down, view it pragmatically and don't make decisions based off of emotion. Remember how and why you made your portfolio in the manner that you did.

Mistake 2: Not Actively Building An Emergency Savings Account

It is very important to build an emergency savings account that is NOT for large purposes. In this account you should keep three to six months of living expenses.

Mistake 3: Not Talking To A Financial Planning Professional

Talk to a professional' they will help you make informed decisions and not emotional ones. Even though google is helpful, most people lack the specialized knowledge needed to build a successful financial plan. 

Mistake 4: Assuming Estate Documents Are Adequate

Get with an attorney that specializes in estate planning to ensure that your documents are adequate. It may be uncomfortable, but all of us may face the dangers and risks of the pandemic and prepare for ourselves as well as our family. 

Mistake 5: Skipping Annual Reviews With Your Financial Advisor 

It is important to stay engaged in your financial world, so do not skip meetings!

See Meredith Moore, Five Common Financial Mistakes To Avoid During The Pandemic, Forbes, May 22, 2020. 

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

May 25, 2020 in Current Events, Estate Planning - Generally | Permalink | Comments (0)

Saturday, May 23, 2020

Wealth Transfer Planning Opportunities in the Current Environment

UnknownThe current COVID-19 crisis and has created significant wealth transfer opportunities for those high net worth families who are subject to the Federal estate and gift tax. The Federal exemption, which is the amount of assets that every individual can transfer during life or death without paying an estate or gift tax is $11.58 million for 2020. Given the current low interest rates, there are a variety of wealth transfer opportunities available to those who want to pass assets down to future generations with little to no tax cost. 

Grantor Retained Annuity Trust (GRAT)

One of the wealth transfer opportunities is the GRAT, which is an irrevocable trust to which an individual transfers assets one exchange for an annuity payable over a specified term. When the term expires, the remaining assets of the GRAT pass onto the grantor's beneficiaries or trusts for their benefit. The GRAT is an effective way to take advantage of the low rates that have resulted from these uncertain times.

Sales to Intentionally Defective Grantor Trust (IDGT)

For owners of closely held businesses or real estate interests, sales to IDGT for the benefit of family members is another great opportunity. The goal of this transaction id to transfer the future income and appreciation of the asset to the next generation at a reduced gift tax cost. 

Loans to Family Members

Another simple and effective way to take advantage of the times in a ways that benefits and assists the next generation is through intra-family loans. Loans to family members must bear interest at a rate at least equal to the AFR; but given the historically low rates, borrowing costs are reduced. 

In sum, these wealth transfer opportunities are not mutually exclusive and can be considered in tandem in order to achieve a significant amount of wealth transfer. 

See Wealth Transfer Planning Opportunities in the Current Environment, csglaw.com, May 20, 2020. 

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

May 23, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Friday, May 22, 2020

Florida Court Applies Common Law To Modify Irrevocable Trust

Fotolia_8699885_XSIn the May 2020 case Demircan v. Mikhaylov, Florida's Third District Court of Appeal determined that the Florida probate court appropriately applied Florida's common law of trusts to modify an irrevocable trust. 

The settlor of the trust, Igor Mikhaylov, created the Igor Mikhaylov 2015 Irrevocable Trust ("Trust") to fund a business involving the development of a shopping mall and also to benefit his children. The trust appointed Genna Demircan as the trustee and named Anatoly Zinoviev as the only person with the power to remove the trustee. 

When disagreements arose between the settlor, Demircan, and Zinoviev, the settlor stopped all funding from the Trust for the business. The settlor and beneficiaries then filed suit to strip Zinoviev of his powers and to remove Demircan as trustee. Zinoviev and Demircan moved to dismiss the action and were successful. The settlor and beneficiaries later voluntarily dismissed the suit. 

The settlor and beneficiaries refiled their lawsuit in the probate division, but left out Zinoviev as a defendant because they found out that Zinoviev appointed Nelson Rincon as the current trustee. The plaintiffs added Rincon as a defendant and sought to have him removed from the Trust. 

Rincon argued that Zinoviev was an indispensable party who had not been joined, that the beneficiaries' consent to the modification was not sufficiently shown, and that common law modification required consideration of factors other than consent. 

The trial court allowed modification of the Trust pursuant to the common law rule expressed in Preston v. City National Bank of Miami

The Court ultimately held that a current trustee has standing to appeal a trial court's modification of the trust and also that Zinoviev was not an indispensable party because a complete and efficient determination of the equities and rights was possible without joining him.

The main takeaway is that modification of the irrevocable trust was agreed to by the settlor and beneficiaries and therefore, under the common law of trusts, the probate court could modify the trust without making requisite findings under the Florida Trust Code. 

See Florida Court Applies Common Law To Modify Irrevocable Trust, Probate Stars, May 22, 2020. 

May 22, 2020 in Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0)

Modern Trust, The First Complete End-to-end Digital Service for Online Estate Planning Launches Limited Time Offer

7074702-web-technology-internet-abstract-as-a-conceptModern Trust recently announced the launch of its flagship site, Moderntrust.com, which is the first digital and comprehensive online resource devoted to creating, editing, and maintaining living trusts and estate planning documents online. With this site, preparing for your family and loved ones will be quicker and easier than it's ever been. 


The current global pandemic has created challenges that could have never been predicted. Due to COVID-19, many people have been left unprepared for the uncertain times that the country has faced. The manner in which trusts are created and estate planning is done has proven to be time-consuming, expensive, and difficult. With this new technology, Modern Trust is working to modernize and evolve the old estate planning system.

With this new site, users will have an interactive guide to help navigate through a number of planning options, make informed decisions, and virtually create their living trust online. Also, user will have unlimited access to a digital form of their trusts. Users will also be able to change beneficiaries and trustees as well as add special trust provisions. Users will have unlimited lifetime access and this access will only passed onto the designated family members upon the death or incapacitation of the user.  

As a community service, Modern Trust will provide a courtesy discount of $100 off their regular price for any users of the Modern Trust Service until June 30th. (Promo code, "SAVE100").

See Modern Trust, The First Complete End-to-end Digital Service for Online Estate Planning Launches Limited Time Offer, PR Newswire, May 20, 2020

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

May 22, 2020 in Current Events, Estate Planning - Generally, Trusts, Web/Tech | Permalink | Comments (0)

Thursday, May 21, 2020

Why an Estate Freeze Makes Sense Now

Estate_freeze@2x_opt The U.S. dollar has appreciated against the Canadian dollar by close to 9 per cent. As of May 19, the S&P/TSX has recovered more than half of its losses while the Canadian dollar remains down by more than 5% compared to its value on February 21. This has caused Canadians to update their estate plans to ensure that their last will and testament is current. Further, they are learning how they can pass along their wealth to their children or beneficiaries with the least amount of tax on death. Given the global public health crisis due to COVID-19 and its economic impact, now is a perfect time for tax planning using an estate freeze.

The recent dip in the stock market and the Canadian dollar has actually sprung new estate planning opportunities. Canadian residents have begun to use a tax plan known as an estate freeze. In an estate freeze you essentially take certain assets that you own today, freezing the tax on death at today’s value, retaining the voting control while passing future growth to children or other designated beneficiaries.

In Canada, when one dies they are assumed to have sold all of their assets before they died, with the exception of spousal transfers. Even though the consequences are not as harsh in the United States, this provides plenty incentive in freezing the values of your estate today as opposed to the higher value it will be at the time of your death. 

The freeze must be valued at fair market value, which is very low at the moment given the economic crisis we are in due to the pandemic. This means huge tax savings for your future estate, which means better financial security for your family!

See David Altro & Bradley Richard Thompson, Why an Estate Freeze Makes Sense Now, Globe Mail, May 20, 2020. 

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

May 21, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Wills | Permalink | Comments (0)

What The Wealthy Are Doing With Their Estate Planning During the COVID-19 Crisis

Estate-planning-chalkboard-750Given the impact of COVID-19, many wealthy Americans are looking for unique estate planning opportunities. When it comes to estate planning, timing is everything which is why many wealthy individuals are considering the Grantor Retained Annuity Trust or a GRAT during the COVID-19 crisis. GRATs are a great technique for passing appreciation to the next generation with little to no gift or estate tax consequences. GRATs will prove to be a very powerful tool during this crisis. 

How the GRAT Works

The grantor will take annuity on the anniversary date throughout the life of the trust. The amount of the annuity payment during the term of the GRAT is calculated using an interest rate determined monthly by the IRS called the section 7520 rate. The section 7520 rate is why the GRAT is a great estate planning strategy during these uncertain times. The rate in May is .08%, which is considerably low, given a year ago the rate was 3.2%. Therefore, if the trustee's investments outgrow the rate, the beneficiaries will benefit from the GRAT. 

Risks Involved

It is not uncommon for GRATs to fail and there is no guarantee that it will work. If your stock underperforms in relation to the rate, the grantor will typically retain the assets from the trust and the beneficiaries will no receive anything. Therefore, in order to be successful, Grantors need to make sure they choose investments with strong appreciation potential.

It is also important to note that wealthy individuals need to be aware that while assets are in the GRAT, the grantor will still need to pay income taxes due on them. 

Given the current timing today, the low 7520 hurdle rate, and the potential for strong market returns in the next few years, this is the perfect environment to engage in this type of estate planning. 

See Megan Gorman, What The Wealthy Are Doing With Their Estate Planning During the COVID-19 Crisis, Forbes, May 9, 2020. 

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

May 21, 2020 in Current Events, Estate Planning - Generally | Permalink | Comments (0)

Wednesday, May 20, 2020

Magistrate Suggests Dismissing a Settlor's Claim Against Trust Protector Because of a Lack of Fiduciary Duty

Fiduciary-DutiesIn the Texas case Ron v. Ron, a wife created a trust with her husband as a trustee, a friend as a trust protector, and her children as beneficiaries. The wife claimed that the husband made inappropriate transfers of community property to the trust before and after their divorce and that the trust protector inappropriately added the husband as a beneficiary to the trust. The wife sued the trust protector for breach of fiduciary duty and the trust protector filed a motion to dismiss claiming that he did not owe her any fiduciary duties. 

The federal magistrate stated that trust protector role is relatively new, so there is little to no authority discussing the role of trust protectors in Texas. The Texas Trust Code states that the trust protector only has the power and authority granted to him by the terms of the trust.

The wife argued that the trust itself created a formal fiduciary relationship between her and the trust protector as the trust expressly stated the "Trust protector's authority is conferred in a fiduciary capacity." The magistrate further stated that the language itself did not create a duty especially given the language, “[a]ll provisions of this agreement are to be construed to accomplish these objectives.” The magistrate stated that if they were to construe this language as creating a fiduciary duty, every individual implicated by this provision would be subject to a fiduciary relationship with the wife. 

The magistrate held that the Texas law does not create a fiduciary duty between the trust protector and the settlor. and the magistrate recommended dismissing the wife’s claims against the trust protector.

See David Fowler Johnson, Magistrate Suggests Dismissing A Settlor's Claim Against Trust Protector Because of a Lack of Fiduciary Duty, Winstead, May 13, 2020.

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

May 20, 2020 in Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0)