Wills, Trusts & Estates Prof Blog

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

Wednesday, December 29, 2021

CLE: Estate Planning With Specialty Assets: Carried Interest, SPACS, and QOZ Funds

On Thursday, January 20, 2022 at from 12:00–1:30 PM Eastern, The American Law Institute (ALI) and The American College of Trust and Estate Counsel (ACTEC) are cosponsoring a CLE entitled, Estate Planning With Specialty Assets: Carried Interest, SPACS, and QOZ Funds

Below is more information on the CLE: 

Why You Should Attend

Wealth transfer structures can be complicated and have many moving parts. In recent years, new investment opportunities have emerged with the promise and potential for explosive growth and significant tax benefits. Such specialty assets, including interests in special purpose acquisition companies (SPACs), qualified opportunity zone (QOZ) funds, and private investment funds, are increasingly on clients’ radars as good vehicles for wealth transfer. While these assets can provide unique opportunities for leverage, they also come with nuanced pitfalls and risks within the realms of estate, gift, and income taxation. Join us for this 90 minute webcast to learn how seemingly small variations in different structures can result in quite different solutions. Gain a better understanding of the facts and circumstances of the various options and learn ways to create customized plan structures for each of your clients. 

What You Will Learn

The faculty, all Fellows of The American College of Trust and Estate Counsel and highly-experienced estate and tax planning practitioners, will take a deep dive into the lightly chartered waters of estate planning with specialty assets. They will particularly focus on: 

Carried interests in private investment funds

Various categories of interests in SPACs

Interests in QOZ funds

Preferred partnership structures

 Questions submitted during the program will be answered live by the faculty. All registrants will receive a set of downloadable course materials to accompany the program. 

Who Should Attend

Estate planners and other related professionals, particularly those with wealthy clients, will benefit from this CLE on estate planning with specialty assets offered by ALI CLE and ACTEC. 
Register two or more and SAVE! Register as a group for this program and save up to 35% (click here for more details). Click "Register as a Group" to register at these savings. (Offer valid on new registrations in the same delivery format only; discounts may not be combined.)

 

December 29, 2021 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Sunday, October 31, 2021

TAX PROPOSALS IN THE NEW “BUILD BACK BETTER” FRAMEWORK

Wealth tax"The White House released a new framework for the build back better plan, followed by a preliminary draft of the Bill from the house rules committee." 

Included in the proposal is a spending and tax plan. The specifics of the plan are complicated and involve "rapidly evolving, Congressional dynamics." 

The House Rules Committee text did not include provisions for tax changes like lowering of gift and estate tax exemption amounts; limitations on grantor trusts; increased corporate, income and capital gain tax rates; and provisions related to IRAs and Roth IRAs. Also notably left out was the "Billionaire Income Tax." 

Draft provisions that were included were: 

  • A 15% minimum tax on corporations with more than $1 billion in profits, 1% surcharge on corporate stock buybacks for public companies, and 15% global minimum tax
  • An income surtax applying a 5% percent rate on modified adjusted gross income (AGI) over $10 million, and an additional 3% on modified AGI above $25 million. The income surtax thresholds are lower for trusts, applying a 5% surtax on modified AGI over $200,000, and an additional 3% surtax on modified AGI over $500,000
  • An expansion of the 3.8% net investment income (NII) tax to business profits for material participants making over $400,000, joint filers over $500,000 and all trust and estates (regardless of income levels)
  • Limitation of the qualified small business stock exclusion to 50% for most sales of QSBS after September 13, 2021
  • Limitations on excess business losses of noncorporate taxpayers, including a no-carryover of disallowed losses

See TAX PROPOSALS IN THE NEW “BUILD BACK BETTER” FRAMEWORKWealth: Northern Trust, October 28, 2021. 

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

October 31, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0)

Saturday, October 30, 2021

ACTEC Shares Useful Resources

This week, the American College of Trust and Estate Counsel, ACTEC, shared a podcast that discusses ACTEC’s proposed changes to Sections 6166 and 6166A and an informative video answering questions about the estate administration process.

ACTEC Trust and Estate Talk  (podcast series for professionals)

Closely Held Business, Tiered Entities and Proposed Revisions to Section 6166 ACTEC proposed a major update to a 40-year-old IRS Code 6166 that provides estate tax deferral for family businesses but has aged poorly. Learn what’s in the proposal in this podcast.

ACTEC Family Estate Planning Guide (video series for general public)

What is Estate Administration? - What happens if someone dies without a will? How long will the distribution of assets process take? Estate planning experts answer pressing questions for families and beneficiaries.

October 30, 2021 in Estate Administration, Estate Tax | Permalink | Comments (0)

Thursday, October 21, 2021

Article: Trust Planning and the Washington State Capital Gains Tax

J. M. Coppieters recently published an article entitled, Trust Planning and the Washington State Capital Gains Tax, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. Estate planning

On April 25, 2021, the Washington State Legislature enacted a new state capital gains tax. Before now, Washington state has been one of the few states that does not impose a tax on either income or capital gains. Because of limitations imposed by the Washington State Constitution, the legislature has been forced to characterize the tax as an excise tax, rather than treat it as an income tax as would the federal government and every other state. Based on the statute’s structure and its presentation as an excise tax, whether intentionally or unintentionally, the legislature appears to have excluded both the trustees and beneficiaries of non-grantor trusts from being subject to the tax. This Article reviews the difference between grantor and non-grantor trusts, examines the apparent discrepancy between the two under the statute, and explores tax strategies planners and clients might consider pursuing in the wake of the new tax.

October 21, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Trusts | Permalink | Comments (0)

Wednesday, October 13, 2021

Article: Incentivizing Wills Through Tax

Margaret Ryznar recently published an article entitled, Incentivizing Wills Through Tax, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. Estate planning

There have been recent calls to loosen will formalities in order to allow more people to execute wills, the importance of which has been highlighted by the COVID-19 pandemic. The reduction of necessary will formalities can be successful in expanding the use of wills, as can potential tax incentives for creation of wills, such as a tax credit. However, there are numerous advantages to using tax to initiate change, as considered in this Article.

October 13, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Wills | Permalink | Comments (0)

Friday, October 8, 2021

Article: Closing Gaps in the Estate and Gift Tax Base

Daniel J. Hemel and Robert Lord recently published an article entitled, Closing Gaps in the Estate and Gift Tax Base, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

Three transfer tax minimization mechanisms—zeroed-out grantor retained annuity trusts (GRATs), intentionally defective grantor trusts (IDGTs), and family-controlled entities with steep valuation discounts—significantly shrink the federal estate and gift tax base. This white paper explains how Congress can close all three loopholes. We estimate that these actions—along with complementary base-protecting and base-expanding proposals—would raise more than $65 billion over the fiscal year 2022 to fiscal year 2031 window (and possibly much more than $65 billion). They also would enhance the progressivity of the federal tax system and bolster the long-term revenue-raising capacity of the estate and gift taxes.

To summarize key conclusions:

— Congress should repeal section 2702(b)(1), the provision that enables high-net-worth individuals to achieve extraordinary transfer tax savings via GRATs;

— Congress should harmonize the income tax and transfer tax treatment of IDGTs,
preferably by treating these trusts as nongrantor trusts for income tax purposes;

— Congress should limit lack-of-marketability discounts and eliminate lack-of-control discounts with respect to transfers of interests in family-controlled entities; and

— Congress should supplement these three reforms with additional base-protecting and base-broadening measures: shifting to a tax-inclusive base for gift taxes; limiting the gift tax annual exclusion for transfers in trust; and expanding the requirement of consistency in value for transfer and income tax purposes.

All of these steps remain relevant—and in some respects, even more urgent—if Congress enacts the Biden-Harris administration’s capital income tax reform proposal, which would limit the tax-free step-up in basis at death to the first $1 million of unrealized gains ($2 million per couple). Unless Congress secures the estate and gift tax base, high-net-worth taxpayers will respond to stepped-up basis reform by exploiting transfer-tax loopholes even more aggressively. For this reason, estate and gift tax loophole closers and stepped-up basis reform should be considered complements, not substitutes.

October 8, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Monday, October 4, 2021

Article: How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning

Beckett Cantley and Geoffrey Dietrich recently published an article entitled, How Soon Is Now: Estate of Moore & The Unraveling of Deathbed Estate Planning, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article: Estate planning

On April 7, 2020 the U.S. Tax Court ruled in Estate of Moore v. Commissioner, T.C. Memo. 2020-40, that certain deathbed transfers should be includible in the decedent’s estate for United States Federal Estate Tax (“estate tax”) purposes. The court applied Internal Revenue Code (“I.R.C.”) § 2036 to the transfers due to the decedent’s continued interests in the transferred property. The Tax Court stated that I.R.C. § 2036 creates “a general rule that brings back all property that a decedent transfers before he dies, subject to two exceptions.” The first exception is for bona fide sales for full and adequate consideration. The second exception is for “any property that [the decedent] transferred in which he did not keep a right to possession, enjoyment, or rights to the issue of the transferred property.” The Tax Court stated that the first exception depends on the transferor’s motivations, and that the decedent’s actions made it clear there was no bona fide sale. As a result, the Tax Court determined that I.R.C. § 2036(a)(1) applied to the transfer.

Estate of Moore is the latest in a line of cases in which taxpayers made deathbed transfers close to the date of death and the IRS successfully argued that the transferred property is includible in the decedent’s gross estate. In Estate of Bongard v. Commissioner, 124 T.C. 95 (2005), the Tax Court created a three-part test to determine whether I.R.C. § 2036 pulls property back into a decedent’s estate. In Estate of Strangi v. Commissioner, T.C. Memo. 2003-145, aff’d 417 F.3d 468 (5th Cir. 2005), the Tax Court provided additional guidance for how the court interprets I.R.C. § 2036(a)(1). In Estate of Nancy H. Powell v. Commissioner, 148 T.C. No. 18 (2017), the court builds on the rationale established by Strangi, but ultimately invokes I.R.C. § 2036(a)(2) to include the transferred assets in decedent’s gross estate. This article: (1) provides an overview of deathbed transfers case law; (2) describes typical such deathbed transfers; (3) outlines the I.R.C. § 2036 statute; (4) discusses the main seminal cases in the area of deathbed transfers, including Estate of Bongard, Estate of Strangi, Estate of Powell, and Estate of Moore; (5) synthesizes the case law on I.R.C. § 2036 and analyzers policy considerations regarding such law; and (6) concludes with a summary of the article’s findings.

October 4, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

Sunday, October 3, 2021

Final regulations establish a user fee for estate tax closing letters

Estate planningThe IRS issued final regulations instituting a user fee of $67 for the Service to issue an estate tax closing letter. 

Other than the adoption of the final regulations, there were no significant changes to the proposed regulations issued in late December 2020.

An estate tax closing letter informs its authorized recipient of the IRS's acceptance of the estate tax return (generally, Form 706, United States Estate (and Generation-Skipping Transfer Tax Return) and provides some return information, such as the amounts of the net estate tax, any state death tax credit or deduction, and any generation-skipping transfer tax for which the estate is liable. 

The new user fee will apply to "requests for estate tax closing letters received by the IRS on or after the date 30 days after publication of the final regulations in the Federal Register

(Publication occurred on September 28, 2021). 

See Paul Bonner, Final regulations establish a user fee for estate tax closing letters, Journal of Accountancy, September 27, 2021. 

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

October 3, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, New Legislation | Permalink | Comments (0)

Saturday, October 2, 2021

Charitable lead trusts do good while reducing estate taxes

Wealth taxCharitable lead trusts can be used as a wealth transfer technique to avoid estate taxes while also working "especially well in a low-interest rate environment. . ." 

Charitable lead trusts are typically implemented after your will, powers of attorney, and health care directives have been taken care of. Charitable lead trusts are often set up during your lifetime (inter vivos), but do not have to be and is a separate, standalone trust. 

Here is an example of how a charitable lead trust may work: 

Assume we have a couple with some extra money who want to benefit a charity. . .

The couple has an attorney draft a Charitable Lead Trust (CLT). The terms of the trust say that, for the lifetime of the couple (or the surviving spouse), the CLT will annually pay 5% of the trust to a qualified charity.

At the death of the surviving spouse, the money left in trust will go to (presumably) the couple’s children.

Because of the way it is set up, it is referred to as a “split-interest” gift where a portion of the gift to the trust goes to charity and a portion will ultimately go to the children.

Where do interest rates come in? The current interest rate is used to actuarially determine the amount of the gift going to the children, which the parents will use to file a gift tax return.

Of course, with limited exception, there is not actual tax assessed on a gift like that, it is just mandatory to report gifts that size to the Internal Revenue Service.

In low interest rate environments like the one we are currently in, "the calculated amount going to the children will appear to be lower, but the actual amount could be much higher, depending on the performance of the assets in the trust." 

For more information and examples of charitable lead trusts, 

See Beau Ruff (Guest Contributor), Charitable lead trusts do good while reducing estate taxes, Tri-Cities Area: Journal of Business, August 2021. 

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

October 2, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Trusts | Permalink | Comments (0)

Monday, September 20, 2021

Article: The U.S. Supreme Court In Kaestner: Deciphering the Constitutionally Required Minimum Contacts Necessary for State Taxation of Trust Income

Beckett Cantley and Geoffrey Dietrich recently published an article entitled, The U.S. Supreme Court In Kaestner: Deciphering the Constitutionally Required Minimum Contacts Necessary for State Taxation of Trust Income, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. Estate planning

As far back as 1929, several states have sought to broaden their tax base by expanding taxation to out-of-state trusts that have in-state beneficiaries, even when the beneficiaries possess only a contingent interest in the trust’s assets. On June 21, 2019, the U.S. Supreme Court confronted the constitutionality of this trust tax practice in North Carolina Dep’t of Revenue v. Kimberley Rice Kaestner 1992 Family Trust (“Kaestner Trust”). In Kaestner Trust, the Supreme Court issued a narrow decision in favor of the Trust, basing its opinion on a compilation of landmark constitutional law and civil procedure cases. Specifically, the Court ruled that the domicile of a contingent beneficiary on its own does not constitute sufficient “minimum contacts” between a trust and a jurisdiction for tax purposes, and thus the North Carolina statute violated the Due Process Clause of the U.S. Constitution.

Every jurisdiction has its own method of defining the minimum contacts necessary to bring a trust into its taxation orbit. In light of the Court’s decision, other state statutes that impose a fiduciary income tax based on weak connections may face constitutional scrutiny in the near future, including tax regimes containing “throwback” rules, “one-dollar” rules, and testamentary trust residency standards that rely indefinitely on the domicile of a testator. The main purpose of this article is to understand the Kaestner Trust decision, discuss how the impacted states have adjusted, and identify any statutes peripheral to the case that may face constitutional inquiry in the future.

The introduction to this article provides the foundation for understanding state trust taxation regimes and frames the controversy of multi-state taxation. Part II explains the facts within Kaestner Trust and analysis used by the Supreme Court in rendering the North Carolina statute unconstitutional. It also discusses how the North Carolina trust statute has been impacted. Part III identifies the other states, besides North Carolina, directly impacted by the Kaestner Trust decision and how these states have responded to the case. Part IV analyzes how the decision might promote further inquiry into the constitutionality of statutes that lie on the margins of Kaestner Trust. Finally, the article considers estate planning and trust drafting opportunities created by the case and concludes by briefly summarizing the significance of Kaestner Trust.

September 20, 2021 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, Trusts | Permalink | Comments (0)