Wills, Trusts & Estates Prof Blog

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

Friday, October 30, 2020

Legal Considerations of Living Together in a Multi-Generational Home

HouseDue to COVID-19, many people have had to balance working remotely with caring for their children. That being said, many are using their homes as an office and a school, while also maintaining it as a home. 

The difficulty balancing, remote learning and homework, virtual meetings and work calls, and shopping, cooking and cleaning has created more housework. It is no surprise that wear and tear and stress levels have increased. 

Many are considering moving in with their parents or children are needing to consider the legal implications of doing so. When living with multiple generations, new considerations come into play. These considerations include,  "the burdens and the benefits of raising and teaching the children together, dividing the chores, maintaining the home, and pooling their finances together during this time of uncertainty."

Below are a  few initial questions that you should discuss with your family when considering living in a multigenerational home: 

  • Who is contributing to the purchase price?
  • Is it a gift, advance on inheritance, loan, or will they hold an ownership interest equal to their capital contribution? 
  • How do you equalize your estate to the remainder of your family?
  • What happens if a couple gets divorced?
  • Who has the right to reside in the home and how will the ownership be divided?
  • What happens if a parent must later reside in a nursing home for care?
  • Do they have sufficient assets in their name to pay for nursing care or will Medicaid look to his or her ownership interest in the home for payment?
  • If one of the owners dies, who receives his or her interest in the home?

With all of the uncertainty surrounding us, these questions are very important, and the answers even moreso. 

See Rebecca MacGregor, Legal Considerations of Living Together in a Multi-Generational Home, Bowditch & Dewey, Estate, Financial & Tax Planning Group, October 13, 2020. 

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

October 30, 2020 in Current Events, Death Event Planning, Disability Planning - Health Care, Disability Planning - Property Management, Elder Law, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Guardianship, Trusts, Wills | Permalink | Comments (0)

Tuesday, October 27, 2020

IRS announced 2021 inflation-adjusted rates

IrsIn Rev. Proc. 2020-45, the IRS announced the 2021 inflation adjusted rates including:

The gift and estate tax exclusion increased to $11.7 million for deaths in 2021 (up from $11.58 million for deaths in 2020).

The annual gift tax exclusion remains the same at $15,000.

Note that these amounts could change if Democrats win the White House and both Houses of Congress. Candidate Biden is on record stating that the estate tax exclusion should be limited $3.5 million per person and the gift tax exclusion should be separated from the estate tax exclusion and reduced to $1,000,000.

 

October 27, 2020 in Current Events, Estate Tax, Gift Tax | Permalink | Comments (0)

Potential Estate Planning Implications of 2020 Election Results

EstateplanningAs the presidential election approaches, there has been a lot of discussion surrounding the potential tax law changes. Although nothing is for certain, there are many things that certainly could happen, especially if Joe Biden is elected president and the Democrats gain the majority of both the Senate and the House. 

Potential Tax Law Changes include:

  • Lower Transfer Tax Exemptions
  • Higher Transfer Tax Rates
  • No Income Tax Basis Adjustment at Death
  • Taxation of Capital Gains at Ordinary Income Tax Rates
  • Elimination of Other Popular Estate Planning Tools

 

As the potential tax changes loom about, there are few Year-End Planning Considerations that you should take into account before it is too late:

  • Use "bonus" Exemptions Before They Expire
  • Use Popular Planning Tools Before They Are Eliminated
  • Take Advantage of Low Interest Rates and Depressed Asset Values 
  • Build In Potential Access to Transferred Funds
  • Consider Accelerating Capital Gains
  • Do Not Wait Until December 31st 

As everyone' situation is unique, some of these considerations may not be worthy of your consideration, but it is always better to consider potential options before the options no longer exist. 

See Potential Estate Planning Implications of 2020 Election Results, Winstead PC, October 19, 2020. 

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

October 27, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, October 21, 2020

Tax Planning by Accelerating Gain Recognition into 2020

TaxDemocratic Presidential nominee Joe Biden has recently released a tax plan which may significantly increase the capital gain tax. The plan includes a proposal, which if accepted, "would eliminate the preferred 20% rate on long-term capital gain and qualified dividends for taxpayers with more than $1 million in taxable income."

The Biden plan would subject this type of income to tax at regular tax rates, "with the highest bracket ordinary income tax rate returning to the 39.6% rate in effect prior to the Tax Cuts and Jobs Act of 2017."

"If this proposal is adopted wholesale, it would mean that capital gains subject to a 20% tax rate if recognized in 2020, could be subject to nearly double that tax rate in 2021 or 2022 (or later)."

When tax rates increases, it is possible for a taxpayer to to save income tax by accelerating income tax gain and measuring the potential opportunity cost of paying tax early. 

"By paying tax earlier, the taxpayer will not have the investment returns from funds used to pay the tax because the dollars used to pay the tax are no longer available for investment."

Below are a few ways taxpayers can cause the recognition of gain if interested in accelerating the gain and paying the income tax in 2020:

  • For those taxpayers who own highly appreciated publicly-traded stock, the taxpayer can simply sell and then repurchase the securities. The “wash sale” rule of Section 1091, which generally disallows losses when a shareholder sells securities for a loss and repurchases the same or substantially identical stock or securities, does not apply to disallow recognized gains.

  • Taxpayers who make installment sales in 2020 may elect out of installment sale treatment (causing all of the gain to be recognized in 2020 as opposed to be deferred until the future).

    Taxpayers who sold a company and reported part of the purchase price as an installment sale in prior years can generally accelerate the recognition of the capital gain on the installment sale by either pledging the note as security for a bank loan (which generally accelerates immediate recognition up to the amount of loan proceeds), or by selling, gifting, or exchanging the note. For example, taxpayers may consider gifting or selling the notes to a non-grantor trust, which would cause the gain to be recognized.
     

  • For taxpayers with closely-held business interests, with expectations of selling such business interests in 2021 or 2022, there are a number of ways to recognize the gain at today’s 20% rate, thereby generating basis that can be used to offset gain against sale proceeds in the future (which such proceeds may be taxable at the 39.6% tax rate)

See Stephanie J. Derks & Jason J. Kohout, Tax Planning by Accelerating Gain Recognition into 2020, Foley & Lardner LLP, October 14, 2020. 

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

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

Friday, October 16, 2020

Final regs. outline trust and estate expenses still deductible under TCJA

The IRS issued final regulations "clarifying that certain expenses incurred by, and certain excess deductions upon the termination of, an estate or non grantor trust are not affected by the suspension of miscellaneous itemized deductions for tax years 2018 through 2025." 

Section 67(g), known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, disallows itemized deductions for any tax year beginning after December 31, 2017, and before January 1, 2026. Prior to the TCJA, itemized deductions were allowed so long as their aggregate amount exceeded 2% of adjusted gross income. 

Section 67(e) discusses the computation of the adjusted gross income in regard to an estate or trust and exceptions that may arise in the computations. 

The IRS and Treasury recognized that excess deductions may consist of "(1) deductions allowable in arriving at AGI; (2) non-miscellaneous itemized deductions; and (3) miscellaneous itemized deductions."

Section 67(g) only suspends the third type of deduction. "Consequently, the proposed and final regulations provide rules for trustees to determine for a terminating estate or trust the character and amount of each deduction type and, therefore, their respective allocations to, and applicable limitations upon, the succeeding beneficiaries.:

See Paul Bonner, Final regs. outline trust and estate expenses still deductible under TCJA, The Tax Adviser, September 22, 2020. 

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

October 16, 2020 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts | Permalink | Comments (0)

T&E TALK: The Pros and Cons of Lifetime Gifts

Estate 12.02.32 PMThe federal gift and estate tax exemption are at a record high of $11.58 million per individual, set to roll back to $5 million (adjusted for inflation) in 2026 and depending on this year's election, it could roll back even sooner. 

It may be time to take advantage of the current exemption, but first it may be helpful to consider some pros and cons of lifetime gifts. 

Pros:

One major advantage of lifetime gifts is that gifting can reduce your estate tax bill. "A current gift of property likely to increase in value during your lifetime not only removes the property from your estate but also removes all post-gift appreciation..."

Another advantage is the use of two lifetime "gift-tax free" transfers that will not use up your gift tax exemption. The first one, the federal annual exclusion gift, will allow you to make tax-free gifts each year to any number of individuals up to a certain amount. Those numbers for 2020 are $15,000 per recipient. The second transfer allows you to make direct payments of tuition or medical expenses for another individual. 

There are also number of non-tax benefits of lifetime gifts. For example, gifting property will allow the beneficiary of your gift to enjoy gifted property upon receipt of the gift. 

Cons:

One obvious disadvantage of lifetime gifts is that you will lose control over any assets that you give away. There are certain ways to structure a gift that will allow you access to gifted property (using a trust to gift to your spouse) just in case you need access to the funds. 

Another disadvantage may arise with gifts of appreciated property. If the gift depreciates or fails to to produce a "sufficient spot-gift investment return" there would be a disadvantage to making the gift. 

State laws can also hinder the normal advantages to making gifts. 

See Ada Clapp, J.D., T&E TALK: The Pros and Cons of Lifetime Gifts, Berdon L.L.P., September 29, 2020. 

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

October 16, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Wednesday, October 14, 2020

Healthy Life Insurance Policyowners Can Qualify for Life Settlements

ElderLife settlements are the sale of an unwanted or unaffordable life insurance policy for substantially more than the policy's cash surrender value. These settlements typically benefit seniors by "providing them with resources to help pay for health care costs, medical bills and other needs in retirement." 

Traditionally, for a policy to have value in a life settlement, the insured person would need to be in their mid-to-late 70s and have declined in health since the policy was first issued. Diabetes, heart disease, cancer, and other serious medical conditions were typically needed for the policy to be sold. 

However, now healthy seniors have an option to sell their policies in order to generate income. This income can then be used to invest in retirement plans or pay for healthcare and other future expenses. 

There are three criteria that a healthy senior need to meet in order to qualify for a life settlement:

  1. The policy must be a guaranteed universal life (GUL) policy.
  2. The insured typically must be age 75 or older.
  3. The policy’s death benefit must be at least $250,000.

If a policy owner meets these criteria and they can receive an offer without presented a medical record review or underwriting. 

This provides many benefits. For one, if policy premiums have become too expensive, seniors can receive a life settlement in order to stop paying these premiums. Also, the recent changes in estate tax laws have provided more investment opportunities that seniors can use a life settlement to take advantage of. This would give seniors more control and freedom with their assets. 

See Ted Kilkuskie, Healthy Life Insurance Policyowners Can Qualify for Life Settlements, Think Advisor, October 2, 2020. 

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

October 14, 2020 in Current Events, Disability Planning - Health Care, Elder Law, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Tuesday, October 13, 2020

Biden tax hike plan causes wealthy Americans to panic over estate planning strategies

EstateAs the Presidential Election approaches, wealthy Americans are updating their estate plans. There is a strong concern that a Joe Biden victory "could upend current tax law." 

The Tax Cuts and Jobs Act raised the exemption amount to $11.58 million for individuals and $23.16 million for married couples. However, Biden's proposal would undo this change and would lower the exemption amount before its planned demise on December 31, 2020. "Biden would also do away with step-up in basis, which means unrealized capital gains would be taxed at death."

Understandably, wealthy Americans are concerned with this threat as they would not be able to move assets as easily without triggering the tax. These concerns are pushing wealthy Americans to take advantage of the current tax rates and exemption amounts related to gifts and other transfers. 

Geoffrey Weinstein, special counsel in the Tax, Trusts & Estates Department of Cole Schotz stated, "If Biden were to win the election, a change in tax policy could be retroactive to the beginning of 2021, which is why some individuals are seeking to have these changes in place by year’s end." 

It may be time for you to take a look at your estate plan or if you are a professional, to alert your clients about the chances of the imminent doom that tax law faces. 

See Brittany De Lea,  Biden tax hike plan causes wealthy Americans to panic over estate planning strategies, Fox News, October 12, 2020.

October 13, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, October 12, 2020

Why Progressives Should Push To Scrap The Estate And Gift Tax

EstateDemocratic Presidential Nominee , Joe Biden has proposed the following in his tax plan:

 

  • ·        Eliminate the step-up of the cost-basis for inherited property,
  • ·        Increase estate and gift tax rates by an unspecified amount (it is now 40%), and
  • ·        Decrease the estate tax exemption from $11.58 million to $3.5 million, and the gift tax exemption from $11.58 million to $1 million.

This proposal would reverse the policy on reforms to the tax code that was enacted to pay for World War One. 

Historically, both Republicans and Democrats have supported raising the exemption amount and closing potential loopholes. However, Biden is proposing an end to this trend by dramatically decreasing the tax exemption amount. 

It may be difficult to see how this may affect you, but it will depend on the reason why you transfer assets. What are your motivations and guidelines? 

One thing that is known, high gift and estate taxes are bad because people usually tend to try to avoid them. When rates go up, exemptions go down and the step-up basis is eliminated. 

If you are a Progressive and want to raise more taxes and put an end to dynasties fostered and continued through inheritance, "you should press for elimination of the gift and estate tax and have inherited wealth;th treated as ordinary income."

See Matthew Erskine, Why Progressives Should Push To Scrap The Estate And Gift Tax, Forbes, October 9, 2020. 

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

October 12, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Saturday, October 10, 2020

Estate Planning Tips as We Emerge from a Pandemic and Head into a Presidential Election

EstateThis year has been full of surprises, some of them good, but many of them bad, even heartbreaking. 2020 has been quite unusual, making it the perfect time to think about estate planning.

Here are tips to consider when working through your estate plan in the last few months of 2020:

  • Planning with Continued Low Interest Rates 

You may be able to take advantage of Grantor Retained Annuity Trusts (GRATs) or Charitable Lead Annuity Trusts (CLATs) to take advantage of the historically low interest rates. 

  • Lower Values in Commercial Real Estate 

Now is an ideal time to gift interests in property assets, which can be used to take advantage of the current tax exemption.

  • Checking the Existing Basic Estate Plan 

Now is the time to go back over your estate plan to make sure your wishes are adequately reflected. You should review your testamentary provisions and should consider testamentary tax strategies that take the upcoming Presidential Election into account. 

  • Check Advance Directives and Durable Powers of Attorney

Given the uncertainty due to the pandemic, now is a good time to consider an advance directive for health care and to designate a durable power of attorney.

  • Checking Existing Estate Planning Strategies

Review your estate planning strategies to ensure that they are still effective. Given the uncertainty and change that this year has produced, your strategies may need updating.

  • Renegotiate Family Loans 

The provisions in your loans or other documents many no longer be desirable or there may now be batter strategy for you. You may be able to renegotiate and amend the provisions of these documents to better align with your strategy.

  • Using (or Losing) AEA before 2021 (or 2026).

The $11.58M Tax exemption is expected eclipse at the start of 2026, however, this may happen sooner if Former VP Joe Biden is elected. Therefore, if you do not take advantage of the exemption, you may lose it forever. 

  • Don't Forget about the GST: Are Existing Trusts Being Optimized
  • Strategize about Business Succession and Long-Range Planning

The lockdown that began in March not only locked down the economy, "it created a unique environment for business owners to stop and reflect about their enterprises and the future." It may be time to consider business succession and create a favorable strategy to plan for the future.

  • Consider State Estate and Income Tax Effects on Your Domicile 

See Joseph P. Scorese, Estate Planning Tips as We Emerge from a Pandemic and Head into a Presidential Election, Sills Cummis & Gross P.C., October 8, 2020. 

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

October 10, 2020 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)