Wills, Trusts & Estates Prof Blog

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

Thursday, August 29, 2019

Why You Should Change Your Will Now

WillIf you have made the adult decision to create a will, you have taken a step in the right direction. But even if you think that your estate is modest or you life has not changed much since you signed your will, it is still a good idea to review - just in case.

Federal laws regarding wills and estates are ever-changing, especially from one administration to another. State laws regarding inheritance and gift taxes can also be updated. You may have also written your will before a large promotion or before your parents died, leaving you a portion of their own estates. Often, parents want to protect their children from themselves. If your child is currently in a rebellious stage or not making the best choices, you may have to create a trust to ensure their assets are safe.

A person's estate plan should grow with them, and if you have not look at yours in a while, the time is now.

See Christine Fletcher, Why You Should Change Your Will Now, Forbes, August 27, 2019.

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

August 29, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Wednesday, August 28, 2019

New IRS Addresses for Filing Estate Tax Returns

IrsThe addresses for Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Returns were released November of last year. However, it may be prudent to remind filers that are sending in the form after June 30, 2019 of the new address. Also, for decedents that pass away after December 31, 2018, the address for filing amended Form 706’s will be updated and not be the same as for original filings.

The new address original filings is:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999

For those using a Private Delivery Service, the address is:

Internal Revenue Service
333 W. Pershing Road
Kansas City, MO 64108

See Jody H. Hall, New IRS Addresses for Filing Estate Tax Returns, Fiduciary Law Blog, August 27, 2019.

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

August 28, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax | Permalink | Comments (0)

Sunday, August 11, 2019

Beware, the IRS is Eyeing Your Inherited Money

TaxlawThose that attained their wealth through inheritance are always on guard in case laws change that can affect their taxes. Two recently passed legislative measure may cause wealthy individuals an appropriate level of paranoia.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 passed the House of Representatives almost unanimously, with a vote of 417-3. The Act says that its intention is to encourage more businesses to offer retirement plans and expand opportunities for workers to invest their retirement account funds. It increases the age that a person must take out required minimum distributions (RMDs) from their IRAs, from 70.5 to 72. All that sounds good, but here is the nefarious part: instead of using an IRS table to allow a beneficiary to drain an inherited IRA, non-spouse beneficiary must eliminate the IRAs funds within 10 years of the person's death.

The Tax Cuts and Jobs Act dramatically increased the federal gift and estate tax exemption, and each following year until 2026 will be adjusted for inflation. But the exemption is scheduled to revert back to the much-lower pre-TCJA level in 2026. What tax ramifications would there be for large gifts made during this time? Proposed IRS regulations issued late last year would provide some protection by stipulating that folks who make large gifts while the exemption is in place would not be penalized if the exemption reverts back.

See Beware, the IRS is Eyeing Your Inherited Money, Wealth Advisor, July 15, 2019.

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

August 11, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Non-Probate Assets | Permalink | Comments (0)

Wednesday, August 7, 2019

5 Key Tax Questions for Buying a Vacation Home Abroad

BeachThe allure and prestige of purchasing a vacation home in a foreign land is easy to understand. But there are several tax questions that must be asked to determine if the purchase is a prudent one.

  • Will buying a vacation home in a foreign country impact my U.S. income taxes?
    •  As long as a vacation home is purchased in an individual capacity and is not used to produce rental income, it should not trigger U.S. income tax.
  • Is the mortgage interest on my foreign vacation home deductible?
    • Yes, interest on up to $750,000 of principal is deductible as long as the debt was used to “acquire, construct or substantially improve” a primary residence or one secondary home. After 2025, the principal amount jumps up to $1 million.
  • If I incur foreign real estate taxes, are they deductible?
    • As of right now no, but starting 2026, the itemized deduction for foreign real estate taxes is scheduled to return.
  • I have a U.S. will and testament. Will it sufficiently address the eventual transfer of my foreign home to family or friends?
    • Different countries can have very different estate planning laws, so it is best to work with a tax attorney and an advisor to possibly create a foreign estate plan.
  • Do I risk exposure to double taxation from a wealth transfer perspective?
    • The U.S. estate and gift tax calculation includes the value of all your assets, including real estate abroad. If those foreign countries also impose a gift or estate tax, there may very well be double taxation.

See 5 Key Tax Questions for Buying a Vacation Home Abroad, Northern Trust, June 13, 2019.

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

August 7, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Travel, Trusts, Wills | Permalink | Comments (0)

Friday, August 2, 2019

Wealth Transfer Strategies for a Lower Interest Rate Environment

InterestratesInterest rates influence how wealth transfers are valued for tax reporting purposes, so it is important to take them into account with your planning. Here are some strategic ideas that can be taken advantage of during a low rate environment.

  • Grantor Retained Annuity Trusts
    • Income Tax Advantages
      • The IRS does not look at the actual growth of the assets, so any appreciation above the hurdle rate is passed on to trust beneficiaries free of gift and estate taxes.
  • Charitable Lead Annuity Trusts
    • Tax-Free Transfer to Family Members
      • Any investment performance in excess of the hurdle rate passes tax free to the family members at the end of the trust’s term.
    • Minimizing CLAT Gift Tax Costs
      • If not structured right, gift taxes are a possibility, thus a CLAT should be structured to zero out at the end of its term, resulting in little or no gift tax.
  • Intra-Family Lending
    • No Gift Tax Liability
      • Good avenue to assist family members without incurring any gift tax liability.
    • Loan to Trusts that Benefit Family Members
      • If the trust is a grantor trust, the interest payments on the loan will not have an income tax consequence.
  • Selling Property to a Grantor Trust
    • Maximizing Leverages
    • Income Tax Advantages
      • There is no capital gain recognized when the property is sold to the trust, and the interest payments to the grantor are not considered taxable income.
    • Estate Tax Advantages
      • The assets are completely removed from his or her estate if the grantor outlives the terms of the promissory note.
    • Minimizing the Risk of Gift Tax
      • Make sure the assets are professionally appraised.

See Wealth Transfer Strategies for a Lower Interest Rate Environment, Fiduciary Trust, July 29, 2019.

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

August 2, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Wednesday, July 24, 2019

Let the 'Zombie' Tax Extenders Die, Groups Urge Congress

TaxcalcOpponents to a package of tax extender bills approved by the House Ways & Means Committee on June 20 let their voices be heard this past week on Capitol Hill at a panel hosted by the Committee for a Responsible Federal Budget. The extender bills include H.R. 3298, The Child Care Quality and Access Act of 2019; H.R. 3299, The Promoting Respect for Individuals’ Dignity and Equality (PRIDE) Act of 2019; H.R. 3300, The Economic Mobility Act of 2019; H.R. 3301, The Taxpayer Certainty and Disaster Tax Relief Act of 2019.

The extender bills have been nicknamed "zombie bills" because they had previously expired within the last two years and proponents of them want to revive them from the grave. The Committee for a Responsible Federal Budget estimates that the extenders package would add $150 billion to the debt over 10 years with interest, and $710 billion over 10 years if the temporary policies were permanently extended due to only one of the bills being offset. That singular offset is in HR 3301, which would reverse the 2017 tax law’s estate tax exemption increase three years earlier than scheduled.

See Melanie Waddell, Let the 'Zombie' Tax Extenders Die, Groups Urge Congress, Think Advisor, July 22, 2019.

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

July 24, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation | Permalink | Comments (0)

Saturday, June 29, 2019

Canadian Trust Subject to US Tax

CanadaIf a trust that is created and operated in Canada suddenly has an American beneficiary due to them moving to the states, a practitioner should understand the requirements for the American side of reporting.

Not only should the trust distribution be filed on a form 1040, U.S. Individual Income Tax Return, but also the beneficiary must also file a form 3520, Annual Return To Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, as well as form 8938, Statement of Specified Foreign Financial Assets, which may have specialized valuation rules. The reporting requirements do not stop there. If the beneficiary receives as a distribution equal to more than 50% of the trust's income, they must file FinCEN form 114, Report of Foreign Bank and Financial Accounts.

There is also individual state income tax reporting to consider. Many states impose a state-level income tax on trusts, and the rules vary widely from state to state. New York only taxes trust income if the trust was created by a New Yorker or the trust makes its income from within the state. California, on the other hand, will attempt to tax any trust income that any resident of their state receives. To makes this even more complicated, a Canadian practitioner should also consider estate tax issues and whether the trust falls above the exemptions amount, both at the federal level and the individual state level (if applicable).

See Catherine B. Eberl, Canadian Trust Subject to US Tax, Canadian Tax Highlights, Volume 27, Number 6, June 2019.

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

June 29, 2019 in Articles, Current Affairs, Estate Administration, Estate Tax, Income Tax, Travel, Trusts | Permalink | Comments (0)

Tuesday, May 28, 2019

Does Your Estate Plan Fall Prey to 3 Big Tax Issues?

3Richard (Dick”) Oshins, Esquire from Las Vegas, Nevada, identified what he believes are three of the more sinister tax blunders that affect many estate plans. Upon your annual estate and financial plan review, it would be prudent to determine if it is effected by these three issues.

  • Not fixing Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs)
    • These types of entities were often formed to hold family investment or business assets for one of or more reasons, such as valuation discounts for estate and gift tax purposes. Another common purpose was to exert control, to hold family investments and, even after transferring interest, still retain that control over the entity. Lastly, these entities can provide must desired asset protection. 
    • But too often owners neglect proper maintenance and formalities with these entities, such as commingling personal funds with company funds or not having a properly signed governing instrument.
  • Not swapping out on irrevocable trusts
    • Irrevocable trusts are often used to remove assets from an estate to save on taxes, for asset protection, etc. If the trust is structured as a grantor trust, the income derived from the trust is reported on the income return of the grantor and not the trust itself. A common way to create a grantor trust is to give the settlor the power to swap or substitute personal assets for trust assets of equivalent value.
  • No selection of trust situs
    • Does your home state provide a good environment for your trust? If the tax system is harsher than others, you may be able to "rent" a better jurisdiction to reach your goals and avoid state income tax. When planning any new trust, discuss with your estate planning attorney the pros and cons of which state to use for the trust.

See Martin Shenkman, Does Your Estate Plan Fall Prey to 3 Big Tax Issues?, Forbes, May 27, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) and Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

May 28, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Friday, May 17, 2019

CLE on Estate Planning: New Laws That Make Old Tools Obsolete

CLEThe National Business Institute is holding a teleconference entitled, Estate Planning: New Laws That Make Old Tools Obsolete, on Friday, June 7, 2019, from 10:00 AM to 11:30 AM Central. Provided below is a description of the event.

Program Description

Stay on the Cutting Edge of Your Practice

This timely update will review the latest changes in the rules and will offer new tools to adapt to the new regulatory environment. Make certain your clients get the most up-to-date representation - register today!

  • Get an incisive summary of the tax changes and their implications for existing planning tools.
  • Learn which deductions remain and how to obtain them.
  • Identify planning approaches that no longer help your clients.
  • Gain practical pointers for fixing old trusts.

Who Should Attend

This legal update is designed for attorneys. It will also benefit accountants and CPAs, trust and tax professionals, and paralegals.

Course Content

  • Leveraging and Reporting the Step Up in Basis (Recent IRS Guidance)
  • QPRT Replacements
  • Obsolete Small-to-Medium Size Estate Tools and How to Update Them
  • The Sky High Estate/Gift/GST Tax Exemption and the New Approaches it Dictates
  • Old Large Estate Techniques That No Longer Work and What to Replace Them With
  • Charitable Giving after TCJA
  • Using the QBI Deduction: New Opportunities
  • Fixing Other Old Trusts
  • What if? . . . How the Potential Clawback of the New Rules Affects Client Advice

May 17, 2019 in Conferences & CLE, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Friday, May 10, 2019

Section 1035-Your Way Out of Obsolete Life Insurance Trusts

IrsThe estate and gift tax exemption increase has had many people wondering if they still need a life insurance trust, a tool that was once hailed for its savings potential. For some clients, dismantling existing life insurance trusts may be the smartest move—but not without considering the repercussions of that approach.

One possibility is the fact that the gift exemption may change in the future and revert back to his previous level of between $5 and $6 million. Another factor for clients is that many reside in states that are subject to separate state estate and inheritance taxes, and the majority of these states kept their thresholds at the same level as they were before the tax reform. Meaning that if state taxes were an issue for the client pre-reform, they continue to present the same issues now. Taxpayers with liability concerns regarding a business should also consider asset protection.

The process of dismantling a life insurance trust is very straight forward. The client could choose to give the policy to his or her spouse, and if there are no other assets held in the trust, that would be the end of it. Sometimes there are issues with remainder beneficiaries. But even if they do want to dismantle the trust, clients understand that they will, continue to have ongoing life insurance needs, be it providing for loved ones or using the cash value of the policy during retirement. Enter the 1035 exchange.

The IRC Section 1035 exchange rules allow the owner of a financial product, such as a life insurance or annuity contract, to exchange one product for another without treating the transaction as a sale. No gain is realized, thus there is no tax liability. To qualify, the policy owner must stay the same, except the IRS has allowed a change when the original policy insured two lives in a second-to-die policy and the exchange policy is a single product due to the death of the second person.

See William H. Byrnes and Robert Bloink, Section 1035-Your Way Out of Obsolete Life Insurance Trusts, Think Advisor, April 17. 2019.

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

May 10, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts | Permalink | Comments (0)