Wills, Trusts & Estates Prof Blog

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

Sunday, November 22, 2020

Is Now the Right Time to Forgive Intrafamily Loans?

Estate planningIf you made intrafamily loans to family members in the past, or even more recently due to the COVID-19 pandemic, you should consider forgiving those loans. Here's why, as of now, the gift and estate tax exemption rates are at an all-time high. Also, the interest rates are at a record breaking low. 

It is possible that intrafamily loans can be used as an estate planning tool due to the ability to transfer wealth to your loved ones tax free so long as the loan proceeds reach a certain level of returns. 

"Generally, to ensure the desired tax outcome, an intrafamily loan must have an interest rate that equals or exceeds the applicable federal rate (AFR) at the time the loan is made. The principal and interest are included in the lender’s estate, so the key to transferring wealth tax-free is for the borrower to invest the loan proceeds in a business, real estate or another opportunity whose returns outperform the AFR."

Any excess from these investment returns over the interest expense will work as a tax-free gift to the borrower. With low interest rates, it is much easier to outperform the APR. 

If have some leftover exemption, forgiving an intrafamily loan will allow you to transfer the entire loan principal plus any accrued interest tax-free. This will allow you to take advantage of the $11.58 million exemption amount before it is gone. 

There are also income tax considerations. Typically, forgiving intrafamily loans will be considered a gift, which carries with it no income tax consequences. 

In deciding whether or not you should forgive an intrafamily loan, you should speak with your financial and/or estate planning advisor.

See Joseph R. Marion, III & David T. Riedel, Is Now the Right Time to Forgive Intrafamily Loans?, Adler, Pollock, & Sheehan P.C.: Insight on Estate Planning, October 27, 2020.

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

November 22, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Friday, November 20, 2020

Debt After Death: What You Should Know

BoxHeadAlthough some debts are relieved when you die, others may have a great impact on your family. Below are a few things you should know about incurring debt and how those debts may impact your family after your death. 

First, after you die, your debt becomes apart of your estate. Dividing up your debt is done in a process called probate. "The length of time creditors have to make a claim against the estate depends on where you live. It can range anywhere from three months to nine months. Therefore, you should get familiar with your state’s estate laws, so you are well aware of which rules apply to you."

You should know that Beneficiaries' money is partially protected but only if they are named properly. Unsecured creditors usually will not be able to touch funds that are in life insurance policies or 401(k)s. However, if beneficiaries are not named until after your death, the funds will go to the estate leaving them open to creditors. 

Credit card debt will not disappear so easily. It is the norm for the estate to pay credit card debt using the estate's assets. So long as children are not a joint holder on the account, they will not inherit credit card debt. If a surviving spouse is a joint borrower, they will be responsible for their deceased spouse's debt. It is important to pay attention to joint applicants and joint borrowers on your credit card accounts, whether or not they had anything to do with the credit card following the paperwork. 

Federal student loan debt will be forgiven. Once the borrower dies, the debt is forgiven, however, proof of death is required. This rule is not the same for private student loan debt. Although some loan programs offer loan forgiveness upon death, others are not so generous. Thus, it is important to know where your student loans came from and who the borrower was, especially for private loans. 

In regard to your mortgage, if your heirs inherit property, lenders must allow them to take over the mortgage. However, heirs are not required to keep the mortgage and can refinance or pay off the debt. This same rule applies to the surviving spouse. 

Marriage is very important. If your spouse dies, you are legally required to pay any "joint tax owed to the state and federal government."

It is very important for you to organize your debts and use any safeguards possible to plan for your debts and how they may impact your family in the event of your death. 

See Michael Aloi, Debt After Death: What You Should Know, Kiplinger, November 2, 2020.

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

November 20, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Thursday, November 19, 2020

Year-end planning just got a whole lot more complicated

Estate planningAs Election Day approached, talk surrounding estate planning grew. Presidential candidate Joe Biden announced his tax plan proposal, which many thought may come to fruition if the Democratic Party won the Presidency and took over a majority of the Senate. The proposed tax plan would significantly reduce estate and gift tax exemptions. 

Although the election has come and gone, there is not yet much clarity surrounding the future of estate planning. It appears more likely than not that Joe Biden will be the next President, there is still a lot of discussion. Further, the determination of which party will control the Senate will not be made until the two runoff elections in Georgia are held in January.

Therefore, we will not know who will control the Presidency, House, and Senate until after 2020 has ended. Due to the uncertainty, estate planning has been and will continue to be difficult. 

It may be in your client's best interest to take advantage of the current tax exemptions while they are available. Whether this is what is best for your client will depend on their current financial situation. It may be the case that the potential reduced exemptions will not affect them.

However, "The harder situation is for those individuals who might not have a federal tax due at death if the exemptions stay where they are, but would owe tax if they were to be cut by 50% or more. Those of us who lived through 2012 have already seen this movie. In these cases, there may be ways to structure the gift to give a family more time to make the decision."

It is important to discuss the implications of the new exemption rates and the potential impact they could have on your client, whether or not the new tax plan is a sure thing.

See Scott Bieber, Year-end planning just got a whole lot more complicated, Thompson Coburn LLP, November 13, 2020. 

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

November 19, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Wednesday, November 18, 2020

Article on Preserving the Artistic Afterlife: The Challenges in Fulfilling Testator Wishes in Art-Rich, Cash-Poor Estates

Hannah K. Feldman recently published an article entitled, Preserving the Artistic Afterlife: The Challenges in Fulfilling Testator Wishes in Art-Rich, Cash-Poor Estates, Fordham Intellectual Property, Media, & Entertainment Law Journal (2020). Provided below is the abstract to the Article. Estate planning

Artists' estates present unique legal issues distinct from the estates of art collectors-cum-investors, as these estates tend to be much more art-rich and cash-poor,leading to difficulties in funding legacies when there is no cash readily available and all of the value of the estate is tied up in the artworks themselves. Robert Indiana, an American sculptor who was frequently exploited throughouthis lfe and now appearsto be subject to posthumous exploitation, will be examined as a textbook example of such an artist'sestate. The issues surrounding Indiana's estate exemplify the challenges in following a testator's intent to leave a lasting artistic reputation when the artist has not also left behind the cash necessary to fund their dreams. This Note looks at the judicial doctrines of cy pres and equitable deviation and various legal scholars' proposed solutions to modifying such impracticable dreams, particularly in the case of artists 'and art collectors' estates. Specifically, the Note argues that Indiana's collection should not be housed in his ramshackle man- sion on a rural island in Maine, but rather should be bequeathed to the Farnsworth Museum in Rockland, Maine. Substantively, this Note concludes that public benefit should prevail over dead hand control in the case of artists'estates.

November 18, 2020 in Articles, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Tuesday, November 17, 2020

It’s a tough year for year-end tax planning

Estate planningWith the new year approaching and the likelihood of a new president, advisers have their work cut out for them. Not knowing who will control the senate, leaves helping clients plan difficult. 

If the Democrats control the Senate, it is more likely that tax plans will change dramatically as Presidential candidate Joe Biden's proposal is very different from what President Donald Trump implemented. Control of the Senate will likely be determined on the Georgia Senate seats. 

Although possible, the odds of the Democrats winning both Georgia Senate seats is only 25%. Thus, it is not very likely. 

Even though Democratic control of the Senate is unlikely, the possibility should be taken into consideration. Under Biden's proposal, capital gain tax, charitable giving, and estate tax would be affected. 

Biden has proposed raising the capital gain rate form 20% to 39.6% for taxpayers with income over $1 million. So it may be more beneficial for individuals to sell before the end of the year. 

In regard to charitable donations, Biden's proposal caps itemized deductions at a 28% tax benefit for anyone making more than $400,000, compared to the current rate of 37%. 

In regard to estate tax, the Biden plan would reduce the gift and estate tax exemption from the current $11.58 million to $3.5 million. 

If your clients are making plans and their plans include one of these three categories, it may be safe for them to go ahead and make their moves before 2021. 

See Dave Strausfeld, J.D., It’s a tough year for year-end tax planning, Journal of Accountancy, November 16, 2020. 

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

November 17, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Tuesday, November 10, 2020

Commentary: Estate tax poses clear threat to nation’s family farms

FarmFollowing a death, taxes are placed on the transfer of property. These taxes are called estate taxes. The Tax Cuts and Jobs Act increased the estate tax exemption to $11.58 million over person. This number is set to return to $5 million after December 31, 2025.

Farms with assets above the tax exemption will be heavily affected. Many times, farms will have to liquidate assets to meet estate tax obligations which pose a significant threat to farmers and ranchers because their estate taxes are based on the market value of the asset.

Thus, as agricultural land and assets often appreciate, the estate taxes can be very high. "A limitation on the estate tax exemption means that each year, fewer and fewer farm families will be protected from the estate tax– a clear risk to the continuity of family farms."

The lowering of the estate tax exemption limit will have a damaging effect on farmers and ranchers and should be taken into consideration. "By eliminating estate taxes, or making the current exemptions permanent, U.S. farmers and ranchers will be able to avoid, at least partially, liquidating inherited farm assets to meet the death tax’s financial obligations." 

See John Newton & Patricia Wolff, Commentary: Estate tax poses clear threat to nation’s family farms, American Farm Bureau Federation, October 19, 2020.

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

November 10, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (1)

Monday, November 9, 2020

Estate and Gift Tax Chart for Non US Persons (Greencard Holders and NRA’s)

Estate planningProbate Stars provided the 2021 Estate and Gift Tax Chart for Non US Persons (Greencard Holders and Nonresident Aliens). 

The chart includes the IRS tax adjustments for tax year 2021 and updates the exemption and exclusions for estate and gift tax for Non US Persons. 

The current rate of taxation for taxable gifts and bequests is 40%. "Amounts gifted beyond the annual gift exclusions and beyond the lifetime applicable exclusion would be taxed at that rate.  Likewise, at death, any taxable bequest beyond the lifetime applicable exclusion is taxed at 40%." However, not all gifts are taxable. For example, gifts and bequests to US citizen spouses are not taxed. 

United States Citizens and Permanent Residents are subject to United States estate and gift tax on worldwide assets. Further, US citizen spouses can receive lifetime gifts at death from their spouse at an unlimited amount. "  With respect to bequests at death, a non-US citizen spouse can receive the benefits of citizen status through the use of a Qualified Domestic Trust (“QDOT”), where the estate tax is deferred until actually paid out to the non-citizen spouse, or the spouse does at some point become a citizen."

The Applicable Exclusion Amount is "the amount transferred prior to death that can be transferred free of gift tax." Upon death, the same Applicable Exclusion amount will apply, apart from any portion that was used to eliminate the gift tax during life. These portions will reduce the amount available at death.

See Estate and Gift Tax Chart for Non US Persons (Greencard Holders and NRA’s) , Probate Stars, (last visited November 9, 2020). 

November 9, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts, Wills | Permalink | Comments (0)

Friday, November 6, 2020

Estate Planning Strategies: IRS Applicable Federal and 7520 Interest Rates Lowered

Estate planningThe Internal Revenue Service (IRS) published interest rates every month that taxpayers use to "determine the interest to be charged in income tax and estate planning strategies." 

These published rates are referred to as Applicable Federal Rates and "depend on the length of the term of a promissory note, the number of times interest is paid each year (i.e., monthly, quarterly, or annually) and the interest paid by the U.S. Treasury on its obligations. Also, the IRS publishes a rate under Section 7520 of the Internal Revenue Code. This rate is used for actuarial calculations. "The 7520 Rate equals 120% of the federal mid-term rate rounded to the nearest two-tenths of a percent." 

Due to Covid-19, banks have lowered interest and rates and bond yields have reduced dramatically, drawing close to historic lows. These reductions affect the Applicable Federal Rates and the 7520 rate. 

"For instance, the annual rate for November 2020 (compounded annually) applied to short-term obligations (1-3 years) is 0.13%, the mid-term rate (4-9 years) is 0.39% and the long-term rate (over nine years) is 1.17%. The 7520 Rate which is used to make actuarial calculations for several estate planning techniques is 0.4% for November transactions." 

The use of the lower interest rate results in a lower cash flow return to the lender, meaning more cash growth in the trust.

Grantor Retained Annuity/Unitrust Trusts and Charitable Lead Trusts all benefit from these low-interest rates. However, other trusts like, Qualified Personal Residence Trusts, do not share the same positive relationship with low-interest rates. 

Unfortunately, the low-interest rates will not last forever, so no is a great time to consider taking advantage of the low rates and implementing estate planning strategies that will allow you to do so.

See Christopher R. Gray, Estate Planning Strategies: IRS Applicable Federal and 7520 Interest Rates Lowered, The National Law Review, November 2, 2020. 

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

November 6, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Thursday, November 5, 2020

Estate planning for your worldwide assets

Estate planningDue to globalization, more South Africans are traveling and working abroad. Due to the rise in travel, South Africans are "purchasing assets and investing in businesses overseas." "In addition, with local political and economic uncertainty, more South Africans are investing offshore either through foreign-domiciled funds or rand-denominated funds." 

If you have foreign assets, you may need to take extra steps to ensure that the assets are protected and that their succession is correctly planned for. 

Worldwide Will

"Unless otherwise specified, your South African will covers your world-side assets." Therefore, you may need to draft as separate will that deals with your assets that are located elsewhere. "From a practical perspective and depending on the foreign jurisdiction, it may not be possible to have your South African estate and foreign estate wound up simultaneously due to requirements by each jurisdiction for certified and court-sealed documentation."

Foreign Will

Foreign wills are also referred to as offshore wills or concurrent wills. These type of wills deal with assets you own that are located in a foreign jurisdiction. This type of will is typically required when you own "immovable property or shares in an overseas company."


You must have your South African-drafted will approved and validated by the foreign legal authority so that your foreign assets can be administered in that jurisdiction. 

Freedom of testation

"Many countries, such as South Africa, the UK and Canada enjoy the freedom of testation which is essentially the right of the testator to bequeath their assets to whoever they wish."

Mandatory succession rights

"Many countries, especially those in civil law jurisdictions and those operating under Shariah law, have mandatory succession rights – otherwise known as ‘forced heirship’. These countries include Mauritius, Switzerland, Spain, France, Japan and Portugal. While mandatory succession rights vary from country to country, these rules essentially restrict a testator’s freedom to distribute their estate as they see fit. "

Foreign Jurisdiction

There are a few things to consider if you own assets in a foreign jurisdiction. You may have to account for language barriers and translation costs which can result in delays and additional expenses. Further, if you own immovable property overseas, that jurisdiction may only recognize a will executed in that jurisdiction. 

Offshore invested assets

"If you are invested directly offshore through foreign-domiciled funds, your investments are held in the foreign country’s currency such as dollars, euros or pounds and, generally speaking, you may require a foreign will to deal with these assets. On the other hand, if you are invested offshore through a rand-denominated fund such as a feeder fund, your funds are held in South African currency and a foreign will is not required."

Tax Residency

If you are a permanent resident in South Africa, the South African tax system will control your worldwide estate. Therefore, capital gains tax and estate duty will apply to your estate. 

Accidental Revocation

"If you have a South African will and a foreign will, be sure to avoid inadvertently revoking a will. All wills should include what is referred to as a revocation clause which effectively revokes all previous wills that you have drafted."

Double taxation agreements

Consider whether South Africa has a double taxation agreement with the country where you have other assets. This is important, because if you do not take this step, you may end up paying taxes in both countries. 

See Eric Jordaan, Estate planning for your worldwide assets, MoneyWeb (South Africa), November 3, 2020. 

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

November 5, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Travel, Wills | Permalink | Comments (0)

Friday, October 30, 2020

Legal Considerations of Living Together in a Multi-Generational Home

HouseDue to COVID-19, many people have had to balance working remotely with caring for their children. That being said, many are using their homes as an office and a school, while also maintaining it as a home. 

The difficulty balancing, remote learning and homework, virtual meetings and work calls, and shopping, cooking and cleaning has created more housework. It is no surprise that wear and tear and stress levels have increased. 

Many are considering moving in with their parents or children are needing to consider the legal implications of doing so. When living with multiple generations, new considerations come into play. These considerations include,  "the burdens and the benefits of raising and teaching the children together, dividing the chores, maintaining the home, and pooling their finances together during this time of uncertainty."

Below are a  few initial questions that you should discuss with your family when considering living in a multigenerational home: 

  • Who is contributing to the purchase price?
  • Is it a gift, advance on inheritance, loan, or will they hold an ownership interest equal to their capital contribution? 
  • How do you equalize your estate to the remainder of your family?
  • What happens if a couple gets divorced?
  • Who has the right to reside in the home and how will the ownership be divided?
  • What happens if a parent must later reside in a nursing home for care?
  • Do they have sufficient assets in their name to pay for nursing care or will Medicaid look to his or her ownership interest in the home for payment?
  • If one of the owners dies, who receives his or her interest in the home?

With all of the uncertainty surrounding us, these questions are very important, and the answers even moreso. 

See Rebecca MacGregor, Legal Considerations of Living Together in a Multi-Generational Home, Bowditch & Dewey, Estate, Financial & Tax Planning Group, October 13, 2020. 

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

October 30, 2020 in Current Events, Death Event Planning, Disability Planning - Health Care, Disability Planning - Property Management, Elder Law, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Guardianship, Trusts, Wills | Permalink | Comments (0)