Wills, Trusts & Estates Prof Blog

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

Friday, February 5, 2021

Biden Wants To Replace IRA And 401(k) Tax Deductions With Tax Credits

Wealth taxThe Biden Administration has proposed a plan that would “change the tax structure for all ERISA plans and IRAs,” Busch said during the virtual event. “Instead of giving investors a tax deduction, they’re talking about changing it to a tax credit. This may change the dynamics of IRAs and ERISA and 401(k) plans if they get this through, which is a part of what Treasury Secretary nominee Janet Yellen is working on over the next 100 days.”

The plan would replace the tax deduction for IRA and 401(k) contributions with a tax credit. 

According to Busch, doing away with these tax deductions could have a severe impact on the way Middle America saves for retirement. 

Another change that has been popular in conversation is the proposed corporate alternative minimum tax that would get rid of tax cuts for anyone that makes more than $400,000 a year.

President Biden proposed a $1.9 trillion package, but recently met with a group of Senate Republicans to discuss a "skinny stimulus" plan which would reduce the plan to $600 million. 

Busch further stated,

“Keep in mind how much stimulus has already been released,” he added. “Some $10.4 trillion has been allocated to the economy. If you are wondering why companies and stocks have recovered, this is why. And there is still $4 trillion that hasn’t made its way into the economy yet.”

It is important to keep these proposed changes in mind when considering your estate and retirement plans, as things could change soon. 

See Tracey Longo, Biden Wants To Replace IRA And 401(k) Tax Deductions With Tax Credits, Financial Advisor, February 1, 2021. 

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

February 5, 2021 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Wednesday, January 27, 2021

Trusts and Estates 2021 Tax Update

TaxWith the combination of the new president, Joe Biden, and the rebalancing of the House and Senate, it may be necessary to prepare for tax changes. During his campaign las year, Joe Biden announced a tax plan that "would decrease he federal estate tax exemption from the current amount of $11.7 million to $3.5 million. In addition, Biden’s tax plan, if implemented, would raise the individual income, capital gains, and payroll taxes for individuals with high levels of income. The changes to the capital gains tax would appear to be the most significant." 

The Tax Cuts and Jobs Act (TCJA) doubled the estate, gift and generation skipping transfer tax exemption to $10 million ($11.7 million adjusted for inflation) set to run from 2018 until 2025. However, with President Biden's tax plan, the exemption amount would be reduced to $5 million before the set date of the end of 2025. It is possible that the rate goes as low as $3.5 million, the amount the rate was in 2009. 

It may be necessary to take a look at your estate plan as these changes could have a big effect. You may want figure out what gifts are linked to the amount of exemption and use the exemption before it is reduced.

If you believe that these changes will or could affect you, it is imperative that you visit with an estate planner to review your financial situation and the implications of the potential tax changes.

See Trusts and Estates 2021 Tax Update, Downs, Rachlin, Martin PLLC, January 22, 2021. 

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

January 27, 2021 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Tuesday, January 26, 2021

Keep Calm and Plan On: Estate & Gift Changes Ahead

TaxAs of now, the federal unified estate and gift tax exemption amount is $11.7 million per person. The exemption rate is set to automatically revert to approximately $6 million on January 1, 2026. 

However, President Joe Biden has brought forth a new proposal which could lower the exemption before 2026. When conversation began about this new proposal, many people felt more comfortable because the rebalancing of the House and Senate appeared to be a long shot. However, now that the rebalancing has occurred, the proposal will likely have more support than originally believed.

"Policy commentators speculate on possible exemption amounts as high as $6 million and as low as $3 million, and even surmise that there could be an end to the unified credit, resulting in a $3.5 million exemption from estate tax and a $1 million exemption from gift tax. . ." 

Another possible change will be elimination of the "step up" at death. There is also some speculation that the tax changes could be retroactive at the beginning of the year enacted. 

It is important to know that, as of now, these projections are merely conjecture. However, it is important, and perhaps necessary, to consider how these changes may effect you or your clients estate plans. 

See Keep Calm and Plan On: Estate & Gift Changes Ahead, Pierce Atwood L.L.P., January 20, 2021. 

January 26, 2021 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Tuesday, January 19, 2021

State Death Tax Hikes Loom: Where Not To Die In 2021

TaxDue to the economic hardships many states are facing in the wake of the pandemic, many are looking to find revenue from death taxes. 

The District of Columbia has already put an estate tax levy in place that went into effect on January 1, 2021. The "Estate Tax Adjustment Act" reduced the exemption from $5.67 million in 2020 to $4 million for individuals who died on or after January 1, 2021. For reference, "a resident dying in 2021 with a taxable estate of $10 million would owe nearly $1 million in estate tax to D.C." 

Seventeen other states have imposed their own estate or inheritance taxes that are separate from the federal estate tax. As of now, the estate tax exemption is $11.58 million per person, but is set to drop back down to $5 million per person (adjusted for inflation). 

Conversation has developed over President-elect Joseph Biden's tax plan proposal which calls for the federal estate tax to go back down to $3.5 million per person, which was the level in 2009. 

The revenue from these taxes could possibly be used to help rebuild the country and repair the damage done by the pandemic. 

See Ashlea Ebeling, State Death Tax Hikes Loom: Where Not To Die In 2021, Forbes, January 15, 2021. 

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

January 19, 2021 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Monday, January 11, 2021

IRS Is Proposing a User Fee for Estate Tax Closing Letter

Estate planningIf the IRS does not get paid, executors and personal representatives of estates of decedents may be held liable for distributing or applying estate assets when unpaid estate taxes are due. 

Typically, a fiduciary will not know the amount of estate taxes due until (1) the statute of limitations has run or (2) there is an audit. This makes it tough for fiduciaries and beneficiaries because often times they will need to hold back on distributions until they know what the tax amount will be. This is also an unfair practice, as fiduciaries are left in the dark. 

In order to assist fiduciaries in determining tax amounts and due dates, the IRS typically has issued an estate closing letter when an estate tax return is filed. However, some years ago, the IRS stopped automatically providing closing letters, mostly to save costs. 

Given the helpful nature of closing letters, fiduciaries could still access them upon request. Now, the IRS has proposed that a $67 user fee be required upon request of a closing letter. "[I]t is always irksome when the government charges members of the public before the government will discharge its duty. In this case, that is particularly so since it is the liability that the government imposes on fiduciaries (both in their fiduciary capacity and their individual capacity) that necessitates a closing letter." 

As of now, there is till no fee for a closing letter, but we will see if that changes!

See Charles (Chuck) Rubin, IRS Is Proposing a User Fee for Estate Tax Closing Letter, Rubin on Tax, January 2, 2021. 

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

January 11, 2021 in Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Friday, January 8, 2021

Article on Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments

Bridget J. Crawford and Wendy C. Gerzog recently published an article entitled, Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. Tax

A tax system should be fair. According to conventional wisdom, this fairness mandate means that similarly situated taxpayers should pay similar taxes. Notably absent from most discussions about tax fairness or equity is any consideration of race. This makes sense, if one focuses on the tax laws’ facial neutrality, as well as the Internal Revenue Service’s failure to collect official data about the race of taxpayers. But if one is interested in equity among taxpayers, we must also examine to what extent different groups of taxpayers benefit from a Code section that reduces their tax liability. In the context of distributional equity, race and other identity characteristics must inform any analysis. This Article intervenes in this discussion with three principal claims: one descriptive, one normative, and one utilitarian.


First, the Article uses data from the higher education sector to demonstrate that primarily wealthy, white taxpayers capture the most generous educational tax benefits. Black taxpayers appear to benefit the least from these tax provisions. Black college graduates have greater education-related debt (both in incidence and quantum) than any other group of their peers. Furthermore Black college graduates have lower average wages and higher rates of unemployment compared to their Asian, Hispanic/Latinx counterparts. Black families are the least likely to be able to contribute to a 529 college tuition savings program or to make tax-free, direct tuition payments. While Black college graduates and families can take advantage of some tax benefits for higher education, the greatest tax expenditures are for those that benefit whites.
The Article next argues that achieving a more racially just society requires attention to the ways that tax laws exacerbate existing race-based economic inequality. This Article uses the example of the gift tax exemption for direct tuition payments to illustrate the ways that tax rules can exacerbate the racial wealth gap. In the context of any tax benefit statute, there are abundant opportunities for future research at the intersection of race and taxation. That work is made more difficult by the absence of readily available tax data on the basis of race, but other data sources can help fill the gaps.
Finally, the Article proposes a test for evaluating the distributional equity of any tax exclusion or deduction that results in an understatement of the donor’s or decedent’s transfer of wealth. Unlike a wealth transfer that is considered an item of consumption, a wealth transfer that has concomitant lifelong benefits, such as direct tuition payments for education, should not be allowed to reduce the donor’s transfer tax base. In the case of wealth transfer taxes, a particular tax benefit is inequitable if (1) it has disparate impacts on the basis of race and (2) the benefit is inconsistent with the overall policy objective of imposing a gift tax on inter vivos transfers that create substantial capital-like advantages to the donee while simultaneously reducing the value of the transferor’s estate. The gift tax exemption for direct tuition payments fails both parts of this test and should be repealed.

January 8, 2021 in Articles, Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Tuesday, January 5, 2021

IRS says Prince's estate undervalued by 50%, triggering another dispute in settlement

PrinceAccording to the IRS, executors of Prince's estate undervalued its value by 50%, which equals about $80 million. The miscalculation has lead to another dispute that could prolong the probate proceedings even further. 

The IRS has determined that PRince's estate is worth $163.2 million even though the valuation submitted by Comerica Bank & Trust claimed the value was $82.3 million. 

The IRS claims that Prince's estate owes another $32.4 million in Federal taxes, which is around double the tax bill amount submitted in Comerica's valuation. 

According to Michael Smith, an estate planning Attorney not involved in the case, there is a "large discrepancy in terms of the dollars involved and the fact that the IRS thinks the estate is worth twice as much." The IRS has also fined the estate $6.4 million for a "accuracy-related penalty." 

Comerica and its lawyers, on the other hand, claim that the estate valuations are correct. 

According to Dennis Patrick, another estate planning attorney not involved in the case, "What we have here is a classic battle of the experts — the estate's experts and the IRS' experts."

See Mike Hughlett, IRS says Prince's estate undervalued by 50%, triggering another dispute in settlement, Star Tribune, January 2, 2021. 

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention. 

January 5, 2021 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Sunday, January 3, 2021

President signs year-end funding, COVID-19 relief legislation; tax provisions are enacted

TaxOn December 27, President Trump signed the Consolidated Appropriations Act, 2021." The legislation includes "over $900 billion fo coronavirus (COVID-19) relief programs, government funding of $1.4 trillion, and myriad tax provisions." 

The legislation includes a tax provision that will allow recipients of Paycheck Protection Program (PPP) loans to deduct related costs. The CARES act will also be extended as well as expanded. 

Tax measures that will result from the new legislation includes:

COVID-Related Tax Relief Act

  • Extension time for repayment
  • Additional 2020 Recovery Rebates
  • Clarification that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income from forgiveness of PPP loans
  • Allowance of an election regarding the tax treatment of certain farming losses for 2018, 2019, and 2020
  • and more

There will always be permanent extensions of temporary provisions and long-term extensions of temporary provisions. Also included will be short-term extensions of temporary provisions. 

There are also numerous miscellaneous tax provisions that include: 

  • Modifications to the low-income housing tax credit rate, including a new minimum rate of 4% for certain buildings
  • Depreciation of certain residential rental property over 30-year period, allowing for the use of 30-year ADS depreciation for residential real property placed in service prior to January 1, 2018, held by an electing real property trade or business in certain circumstances
  • Expansion of current section 48 energy credit to include waste “energy recovery property”
  • Extension of current section 48 energy credit for offshore wind facilities to January 1, 2026
  • Minimum rate of interest for certain determinations related to life insurance contracts
  • Retirement provisions
    • Modification to minimum age for distributions during working retirement
    • Temporary rule preventing partial plan termination
  • Employee retention credit (ERC) and rehiring tax credit
    • Clarifications and technical improvements to the CARES Act employee retention credit, including a clarification regarding the definition of “gross receipts,” a modification to the treatment of health plan expenses, and improved coordination with the PPP
    • Extension of the ERC to July 1, 2021, and expansions including increase in the credit percentage from 50% to 70%, increased per employee limitation, and modifications to the definition of eligible employer
  • Business meals deduction—a temporary allowance of a full deduction for business meals paid or incurred between December 31, 2020, and January 1, 2023
  • Earned income tax credit and child tax credit—a temporary special rule for determination of earned income
  • Charitable contributions
    • Extension of the CARES Act non-itemizer charitable contribution deduction for certain contributions through 2021
    • Extension of the CARES Act modification of donor percentage-of-income limitations for certain charitable contributions through 2021
    • For corporations, a temporary suspension of limitations on the deduction for charitable contributions associated with qualified disaster relief made from January 2020 through late February 2021
  • Health and dependent care flexible spending arrangements, temporary special rules for health and dependent care flexible spending accounts with unused balances
  • Life insurance—reduce the required interest rates used to determine if a policy meets the definition of life insurance for federal tax purposes

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention. 

January 3, 2021 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0)

Friday, January 1, 2021

There’s a Way Biden Can Raise More From the Rich Without Higher Taxes

Wealth taxJoe Biden has offered a proposed tax plan that would apply higher taxes on Americans that make more than $400,000 a year. Joe Biden believes that the tax increases would reduce inequality among other things. 

However, if the Republican party comes out on top in the Georgia runoff elections, Biden will have a hard time succeeding with his tax proposal. The Republican Party has been clear that they are against tax increases. 

If this is the case, Joe Biden may have another option: be more swift in enforcing the current tax laws. 

According to the New York Times, "Tax experts have long identified a large “tax gap” between the amount Americans owe and what is actually collected. This is disproportionately a result of underpayment of taxes by high earners, especially in certain types of closely held partnerships and midsize businesses that face little scrutiny from either the Internal Revenue Service or outside investors." 

With changes in the IRS's budget, rich people have received less attention, which has allowed them to get away with "questionable or illegal" tax strategies. If the IRS's budget were to big enough to allow them to go after the rich and keep tabs on the poor, a large tax increase may not be necessary. Instead, the focus would be on holding the rich accountable for following the tax laws and using legal tax strategies. 

See Neil Irwin, There’s a Way Biden Can Raise More From the Rich Without Higher Taxes, The New York Times, December 22, 2020. 

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

January 1, 2021 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (1)

Monday, December 28, 2020

A California Plan to Chase Away the Rich, Then Keep Stalking Them

Estate planning"A proposed wealth tax would apply for a decade to anyone who spends 60 days in the state in a single year." 

The California Legislature is considering applying a wealth tax on "residents, part-year residents, and any person who spends more than 60 days inside the state's borders in a single year." The wealth tax would also apply to those that move out of state for a decade.

Although the new wealth tax plan would likely be within the confines of the California Constitution, it would likely be unconstitutional per the U.S. Constitution to reach across state borders to tax citizens. 

This tax plan would apply to out-of-state college students going to school in California, those having a major medical procedure in California needing an extended stay and those that vacation in California during the cold winter months on the East coast. 

The proposed wealth tax would place high burdens on a large number of people and that number would increase greatly every year. 

See Hank Adler, A California Plan to Chase Away the Rich, Then Keep Stalking Them, Wall Street Journal, December 18, 2020.

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention. 

December 28, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)