Wills, Trusts & Estates Prof Blog

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

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)

Thursday, May 2, 2019

Best (and Worst) States for Entering the Afterlife

EstatetaxAs the saying goes, nothing in life is certain except for death and taxes. So what are the best and worst states for estate taxes? Though the federal exemption is $11.2 million for an individual, there are 18 states (plus the District of Columbia) in the union that also have state or inheritance taxes of their own. 6 of those 18 states have inheritance taxes, which differ from estate taxes as they apply to the heirs or beneficiaries of the decedent, and the long arm of the law reaches them even if they live outside of that state. Those states are Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, according to Moneytips.com. Spouses, however, are exempt from inheritance taxes.

The jurisdictions that have an estate tax are Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Yes, Maryland has both estate and inheritance taxes. Rhode Island has the lowest threshold at $850,000, which means any estate worth more than that amount will be subject to the state's 16% estate tax. District of Columbia and Hawaii have the same exemption as the federal government, so any estates in those jurisdictions over $11.2 million will have to pay the 40% federal estate tax and the jurisdiction's estate tax (16% and 15.7%, respectively).

So what are the best states to die in? The other 33 states that have neither state estate taxes nor state inheritance taxes. To take advantage of the tax benefits, you will need to establish residency in that state and know the requirements to do it. Florida’s rules are quite extensive and include filing a declaration of domicile, getting a driver’s license and registering your vehicles, opening bank accounts, registering to vote, notifying tax officials, applying for the homestead exemption and updating your estate plan.

See Bryce Sanders, Best (and Worst) States for Entering the Afterlife, Accounting Web, May 1, 2019.

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

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

Monday, April 29, 2019

Beating Bernie’s Bill in 2019

BernieIn January of this year, Senator Bernie Sanders introduced S309, otherwise known as the “For the 99.8 Percent Act” in the Senate. Because many of the propositions within the bill deal with changes in the tax code, any person involved in estate planning or wealth preservation should meet with their financial advisor to determine the appropriate steps. If passed, the Act will become effective January 1, 2020. This most likely not occur now with the current political set-up, but if the Democrats in 2020 take control of the presidency, the House, and the Senate, there is a material risk that some or all of the proposals will be enacted.

The Act rolls backs many of the changes that occurred in the Tax Cuts and Jobs Act. These alterations include lowering the estate tax exemptions to $3.5 million; reduces gift tax exemptions to $1 million; raises the highest estate tax rate to 77%; includes in the gross estate of a decedent all unrealized appreciation in their “grantor” trusts; imposes material restrictions on the use of grantor retained annuity trust (GRATs); limits the duration of dynasty trusts to 50 years, even in states that allow them in perpetuity; eliminates almost all valuation discounts on transfers of privately held entities; and virtually eliminates most Crummey powers from trusts.

As these changes run the gambit for many prudent clients, they should speak with their advisors to determine if any strategies they are using will have to be altered.

See William D. Lipkind, Beating Bernie’s Bill in 2019, WinsonNesler.com, April 25, 2019.

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

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

Thursday, April 25, 2019

CLE on Probate: Tax Return Deadlines, Preparation, Coordination and Filing

CLEThe National Business is holding a webinar entitled, Probate: Tax Return Deadlines, Preparation, Coordination and Filing, on Wednesday, May 8, at 12:00 to 3:15 PM Central. Provided below is a description of the event. 

Program Description

Walk Through the Key Tax Steps of Probate

Final tax returns are an indelible part of the probate process. If done incorrectly, they can cause undue burden on the estate and beneficiaries, keep the estate opened for years to come, and get the executors and attorney in trouble with the IRS. This essential tax guide will give you the fundamental knowledge to ensure all deadlines are met and no planning opportunities are missed. Register today!

  • Clarify the timeline of the estate and tax form procedures.
  • Learn how to use disclaimers and valuation discounts.
  • Make use of all crucial income tax planning opportunities.

Who Should Attend

This tax legal course is designed for attorneys. It will also benefit accountants and CPAs, tax professionals, estate planners, trust officers, and paralegals.

Course Content

  • Final Tax Returns Timeline, Forms and Filing Procedure
  • Estate Accounting and How it Affects Tax Returns
  • Income Tax Considerations in Probate
  • Estate, Gift, GST Tax Liability and Returns
  • Coordinating with Decedent's Accounting or Investment Advisors
  • Common Property Tax Issues

April 25, 2019 in Conferences & CLE, Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Monday, April 22, 2019

7 Celebrity Estate Planning Pitfalls

WillCelebrities have made the news numerous times for either not performing any estate planning, or not enough planning. Here are a few things that any person can learn from celebrities mishaps to plan for different situations:

  • Plan for the unknown
    • No one has a crystal ball (that actually works), so there is a chance that after you make your will you could have a child or a child on the way that is not mentioned. The pretermitted statute of your state could allow the child to not be completely disinherited, but this could throw your entire succession plan off.
  • Plan early
    • People can die at any age, either by accident, addiction, sudden disease, or any other unfortunate tragedy. Planning early is the only way to know that your estate is in order before your death.
  • Update your estate plan
    • Every major life event can alter the way you want your assets to be distributed, whether it be the death of a family member, the birth of a child, or your own marriage.
  • Be specific
    • Do not leave anything to the discretion of the beneficiaries to separate, because this could cause discord among them.
  • Consult a tax professional
    • One of the goals of estate planning is to minimize estate taxes to maximize the gifts to your beneficiaries, and the professionals will know the most efficient ways to do it.
  • Fund the trust
    • If you establish a living trust, remember to place assets in it before you pass away. If you fail to do so, the trust will not be valid and your estate will be passed through the probate process.
  • Plan, period
    • Failure to plan and lack of proper estate planning can cost you and your beneficiaries plenty of wasted time, money and energy.

See Lerea Funderburg, 7 Celebrity Estate Planning Pitfalls, Rolling Out, April 21, 2019.

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

April 22, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts, Wills | Permalink | Comments (0)

Thursday, April 18, 2019

CLE on Final Accounting in Estate Administration

CLEThe National Business Institute is holding a teleconference entitled, Final Accounting in Estate Administration, on Wednesday, April 24th, at 12:00 P.M. to 1:30 P.M. Central. Provided below is a description of the event.

Program Description

Wrap Up Your Client's Estate Administration Quickly and Effectively

Once all the vital documentation is compiled and the creditors appeased, it's time to lay the decedent's affairs to rest. Do you have the knowledge and skill to distribute assets and file the final tax return to close the door on any future disputes and litigation? Our straightforward instruction will help you ensure thorough accounting and settlement of the estate and fair final distribution to heirs. Register today!

  • Find out how to speed up final accounting by getting started early in estate administration.
  • Learn how to properly record all receipts in the final accounting.
  • Gain confidence in handling the most common problems related to disbursements.

Who Should Attend
This course is designed for attorneys. Accountants, trust officers, estate planners, and tax advisers may also benefit from attending.

Course Content

  • Starting the Accounting at the Outset
  • Closing the Estate - The Options
  • Final Accounting: What is Included
  • Service Requirements
  • Final Tax Returns
  • Mishaps to Avoid

April 18, 2019 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, April 17, 2019

Article on A Historical Examination of the Constitutionality of the Federal Estate Tax

ConstitutionHenry Lowenstein & Kathryn Kisska-Schulze published an Article entitled, A Historical Examination of the Constitutionality of the Federal Estate Tax, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article.

During the 2016 presidential debate, Hillary Clinton vowed to raise the estate (death) tax to 65%, while Donald Trump pledged to abolish it as part of his overall tax reform proposal. An interesting question resonates as to whether the tax is even constitutional. This paper takes a fresh look at the Estate Tax, appropriate in an era of a U.S. Supreme Court consisting of a majority of adherents to a more “strict constructionist” view of constitutional interpretation. Although historically regarded by the U.S. Supreme Court as being a constitutional excise tax, it can be theorized that the estate tax is an unconstitutional overreach of taxing power by the Federal government and constitutes a “taking” of private property banned by the 5th Amendment. This article directly confronts the constitutionality of the federal Estate Tax from a purely bedrock perspective. To meet this objective, were review the enumerated powers of Federal taxation as allowed by the U.S. Constitution; dissect the scope of the estate tax, to include an analysis of the judicial and legislative history supporting its constitutionality; theorize that the tax does not have a constitutional basis legitimizing its inclusion in the Federal tax code; and conclude that the estate tax violates the U.S. Constitution and should therefore be repealed.

April 17, 2019 in Articles, Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)