Wills, Trusts & Estates Prof Blog

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

Monday, March 11, 2019

How U.S. Tax Rules Apply to Inheritances and Gifts from Abroad

GiftAs Americans become more global within this modern society, they are asking estate planners questions about properties outside of the country's borders. One of the popular questions is whether an inheritance or gift from abroad will be taxed if brought into the United States. Usually, bequests are not subject to the income tax, and transfers by gift of property not situated in the U.S. from foreign nationals not domiciled in America are not subject to U.S. gift taxes. But depending on the circumstances, certain laws may still apply.

Foreign nationals who are green card holders are generally considered domiciled in the United States and as such are defined as lawful permanent residents. Residents and citizens are covered by one aspect of the estate and gift tax laws, and national without a green card may be considered domiciled for tax purposes. Transfers by foreign nationals not domiciled in the United States are covered by a different estate tax structure that imposes taxes on transfers of certain property situated in the United States.

If the decedent who bequeaths the asset is neither a U.S. citizen nor a foreign national domiciled in the United States, no U.S. estate tax is imposed on the transfer. There is also no tax resulting from the death transfer upon the beneficiary's receipt of a bequest. The United States also does not impose an income tax on inheritances brought into the country.

The United States has gift tax treaties which may eliminate the U.S. gift tax on certain transfers that are otherwise subject to gift taxes under the Code. An exemption from gift tax under a treaty is made on a gift tax return.

See How U.S. Tax Rules Apply to Inheritances and Gifts from Abroad, Find Law.com.

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

March 11, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Travel, Wills | Permalink | Comments (0)

CLE on Estate Tax Return Preparation

CLEThe American Bar Association is presenting a webcast entitled, Estate Tax Return Preparation, on Thursday, April 25, 2019 from 1:00 - 2:30 PM Eastern. Provided below is a description of the event.

This session provides a practical understanding of the issues involved in preparing the federal estate tax return. This course will give you the skills you will need to use the Form, when and how to claim unused DSUE, GST Tax Issues, and special valuations and elections.

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

March 11, 2019 in Conferences & CLE, Current Events, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Saturday, March 2, 2019

Are You Giving Your Heirs an Unanticipated Tax Bill?

BillThe changes brought by the 2017 Tax Act made it so that many clients did not have to worry about the estate tax as the exemption was dramatically increased. However, if an estate plan remains in place that directs assets to a credit shelter trust, unnecessary capital gains tax may be owed. The reason is that the income tax basis of the assets held in a the trust is not stepped up in value at the death of the second spouse because the assets are not included in that spouse’s estate.

The challenge  is to move assets out of the credit shelter trust and into the survivor’s estate to obtain the income tax-saving step-up when the survivor dies. Even though originally credit shelter trusts are irrevocable, many states have acknowledged changed circumstances that make some trusts impractical, outdated or exposed to unanticipated taxation. New state laws are here to help that.

Terminating a non-charitable irrevocable can be accomplished without court approval, so long as there is consent of the trustee and all beneficiaries, and provided the termination is not inconsistent with a material purpose of the trust. As the purpose was to reduce taxes, terminating would align with that goal. Modifying and decanting the trust may also be avenues to pursue. Decanting a trust means that the trustee directs the trust property to a new trust that contains different terms from the original trust but provide the same protections.

See Nancy S. Hearne, Are You Giving Your Heirs an Unanticipated Tax Bill?, Saul.com, March 1, 2019.

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

March 2, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation, Trusts | Permalink | Comments (0)

Thursday, February 28, 2019

Imagine Canada Becoming a Tax Haven for Americans

CanadaDemocrats are eyeing the presidency with an abundance of candidates for the next election, and if they are successful, it appears that the well-off will be paying more in taxes. Though the type of taxes that will be increased is not yet settled, the idea is getting wide-spread approval across the country among the nation's other income brackets.

Avoidance efforts are sure to increase, and the possibility of the most invasive method may seem more and more promising - leaving the country. France had a tax similar to the proposed tax by Representative Alexandria Ocasio-Cortez, but even more extreme. While Ocasio-Cortez wants to place a 70% tax rate on those that make more than $10 million a year, France imposed a "supertax" of 75% rate for citizens making more than 1 million euros per year. The tax only lasted for two years, and during that time many prominent, wealthy individuals moved to Belgium, and French corporations did not attract senior managers.

The potential tax increase in America may not produce a similar exodus of millionaires, because quite simply, America is not France. We have many important epicenters of the technology industry, the finance industry and others. And unlike Europe, there is not an abundance of thriving countries nearby. If the wealthy do decide to leave, their only option may be Canada, where the majority of the population speaks English and the top income rate is 33%: despite some Americans thinking Canada is a quasi-socialist economy thanks to its single-payer health-care system, it’s not actually a high-tax country.

See Noah Smith, Imagine Canada Becoming a Tax Haven for Americans, Financial Advisor, February 13, 2019.

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

February 28, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation, Travel | Permalink | Comments (0)

Monday, February 25, 2019

Tax the Rich? Here’s How to Do It (Sensibly)

TaxcalcPoliticians on both sides of the aisle agree that the tax system is in dire need of repair. The argument is how to do it so that it is equitable and fair. Some want to fix it so that it generates more revenue; others want to use it as a tool to decrease the wealth inequality. Are those appropriate goals? Is there any surprise that the public distrusts taxes so much?

Democratic presidential candidates are suggesting numerous ways to increase the tax rates of the wealthy. Other Democrats are proposing headline grabbing ideas, such as Ms. Ocasio-Cortez’s Green New Deal. But there may be other ways to patch up the system without completely tearing it down.

High net-worth Americans legally skirt the estate tax, even before the exemption increase brought by the Tax Cuts and Jobs Act. One major avenue is by passing much of their riches to their heirs without paying taxes on capital gains - ever. According to the Center on Budget and Policy Priorities this accounts for “as much as about 55 percent for estates worth more than $100 million,” using this stepped-up basis. Closing this loophole would raise more than $650 billion over a decade, estimates the Congressional Budget Committee. 

Capital gains are taxed much less than income taxes. Warren Buffett says his secretary pays a higher tax rate than he does as the rate for capital gains top out at 20%, while a person making a $40,000 salary would be taxed at 22%. 

See Andrew Ross Sorkin, Tax the Rich? Here’s How to Do It (Sensibly), New York Times, February 25, 2019.

Special thanks to Matthew Bogin, (Esq., Bogin Law) for bringing this memorandum to my attention.

February 25, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation | Permalink | Comments (1)

Thursday, February 21, 2019

ING Trusts: The Hot Trend in HNW Estate Planning

TrustsThe tax reforms reflected in the 2017 Tax Cuts and Jobs Act continue to influence high net-work clients, especially the increased estate tax exemption, which at the moment is temporary until 2026. Incomplete Non-Grantor trusts, or ING trusts, can generate significant savings both in income taxes and in overall transfer taxes, meaning that it can be worthy to explore the ING trust strategy.

Central to the ING trust strategy is the presence of an “adverse party or parties" that have the ability to control the distributions of the trust to its beneficiaries. The parties can often include the creator of the trust or even the adult children of the creator. In many states - except New York - ING trusts enjoy reduced income taxes or even no state income tax at all. ING trusts are usually created in states that do not tax trust assets regardless of where the client lives.

Both the proposed and final Section 199A regulations complicate many non-grantor trust strategies by adding a new provision that requires aggregation of two or more trusts in certain circumstances. This is generally required when the trusts have substantially the came beneficiaries or grantors. For tax saving purposes, ING trusts will be most valuable to clients who have multiple natural beneficiaries who can each serve as beneficiary of one trust.

See Robert Bloink and William H. Byrnes, ING Trusts: The Hot Trend in HNW Estate Planning, Think Advisor, February 13, 2019.

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

February 21, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation, Trusts | Permalink | Comments (1)

Wednesday, February 20, 2019

Bill Gates Says he Should Pay Higher Taxes, Doesn't 'Deserve' his Fortune

BillgatesBill Gates recently claimed in an interview with Daily Mail that he does not believe that he paid enough in taxes, though he did everything legally and has paid more than $10 billion over the years. He is worth an estimated $96.8 billion dollars today, but claims that he does not "deserve" his massive fortune, that "nobody does."

“It has come through timing, luck, and through people I worked with. I certainly worked hard and I think software has been a beneficial thing, but I benefited from a structure too,” Gates said. He does not plan to pass on the entire amount to his children; instead, Gates and his wife to donate to their charity that helps fight disease and poverty in other countries.

The Microsoft co-founder says that he was in favor of raising the inheritance tax, but not necessarily to the point of what some politicians have proposed. Independent Vermont Senator and now Presidential candidate Bernie Sanders wants to propose an increase the estate tax to a rate of 77% for those passing on assets in excess of $1 billion. Under this proposal, Gates would owe $73.54 billion, compared to $38.31 billion under current law.

The billionaire businessman, however, does believe there are ways to make the current tax code more progressive.

See Brittany De Lea, Bill Gates Says he Should Pay Higher Taxes, Doesn't 'Deserve' his Fortune, Fox Business, February 13, 2019.

February 20, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

Tuesday, February 19, 2019

Article on The Constitutionality of a National Wealth Tax

MoneyDawn E. Jensen & Walter E. Dellinger published an Article entitled, The Constitutionality of a National Wealth Tax, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

Economic inequality threatens America’s constitutional democracy. Beyond obvious harms to our nation’s social fabric and people’s lives, soaring economic inequality translates into political inequality and corrodes democratic institutions and values. The coincident, relentless rise of money in politics exacerbates the problem. As elected officials and candidates meet skyrocketing campaign costs by devoting more and more time to political fundraising—and independent expenditures mushroom—Americans lose faith and withdraw from a system widely perceived as beholden to wealthy individuals and corporate interests.

The United States needs innovative approaches to help rebuild foundational, shared understandings of American democracy, the American Dream, and opportunity and fairness. Tax policy provides one central context in which collective judgments about fundamental values help form national identity. We believe that a national wealth tax (that is, a tax on individuals’ net worth) should be among the policy options under consideration to support vital infrastructure, social service, and other governmental functions. Although not a new concept, a wealth tax may be an idea whose time has come, as inequality soars toward record highs.

Our aim in this Essay is to help ensure that a wealth tax is among the policy options available to Congress by challenging a common assumption that has unduly harmed its prospects: the belief that the U.S. Constitution effectively makes a national wealth tax impossible. We believe this conventional wisdom is wrong and its casual repetition has been harmful. Devising a progressive tax system that effectively taxes the wealthy is notoriously difficult, but whether a wealth tax is part of that system should depend upon the policy choices of democratically elected representatives, not faulty constitutional understandings.

February 19, 2019 in Articles, Current Affairs, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

One in Five UK Baby Boomers are Millionaires

UnionjackBaby boomers over the age of 65 are dramatically increasing in wealth in the United Kingdom with a 96% increase in the median household wealth from 2006 to 2016, according to Netwealth, a wealth manager that analyzed the Office for National Statistics’ Wealth and Assets surveys. In 2006, those over the age of 65 owned 28% of UK's household wealth and 10 years later than number had increased to 36%.

This age group appears to be getting wealthier due to time and luck. The 10 years studied coincides with the “peaks and troughs of interest rates for the UK,” according to Evangelos Assimakos, investment director at Rathbones in Edinburgh. Banks cut interest rates and provided financial stimulus, and the result was an inflation in financial assets, including property and share portfolios. In fact, now 20% of baby boomers are millionaires.

Younger households do not appear to have fared quite as well. Citizens between the ages of 35 and 44 (Generation X) saw a 5% fall, while the 25 to 34 (Millennials) experienced a 2% decrease. Though these numbers do not seem dire or extreme, they are a far cry from the extravagant increase that the older generation has seen.

With great power - or money - comes great responsibility - or planning. Experts advise that parents or grandparents wanting to assist a child decide if they want to do so with a gift or a loan. If the person decides on a gift, certain decisions should be made on when to transfer the property or cash as to avoid the inheritance tax, which follows the "seven-year rule." Though becoming increasingly expensive, trusts still remain a viable option to transfer wealth to younger generations. 

See Nikou Asgari, One in Five UK Baby Boomers are Millionaires, Financial Times, February 8, 2019.

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

February 19, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, February 6, 2019

Estate Tax Hike to Time with Older Billionaires Dying

MoneyThe increase of the estate tax exemption in 2017 has been reiterated several times, with the new amount standing at $11.8 million, with a top rate of 40%. Democrats are posing a new policy for several presidential candidates that stipulate lowering the tax exemption amount back down and increasing the tax rate for the very wealthy.

Senator Bernie Sanders has an aggressive policy, stating he would decrease the federal estate tax exemption to estates worth $3.5 million, and imposing progressively higher rates that top out a 77% for billionaires. Sanders refers to the proposal as the “For the 99.8 Percent Act" because it would only effect the top .2% of American households.

The timing of using the estate tax to tap into the accumulated wealth of high-net worth citizens may work out better as billionaires are becoming elderly. The Forbes' list of 400 richest Americans include 128 individuals that are over the age of 75. Morbidly, this estate tax hike would slide in to intervene in the largest intergenerational transfer of wealth and pass a hefty chunk to the government. According the research of Equality of Opportunity Project, America’s one-percenters have a higher life expectancy of the mid-to-low 80s.

See Jordan Weissman, This Is a Great Time to Hike the Estate Tax, Because America’s Billionaires Are Getting Really, Really Old, Slate, February 1, 2019.

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

February 6, 2019 in Current Affairs, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (1)