Wills, Trusts & Estates Prof Blog

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

Friday, December 13, 2019

Preserving Small Forestland Through Estate Planning

ForestWashington State University (WSU) Regional Extension Specialist and Forestry Team Leader Andrew Perleberg has taught forestry for 20 years and has also worked on estate planning since 2007. He says that estate planning can be either important or detrimental to small tree farms, depending on how it is utilized. This year is the 20th anniversary of the Forests and Fish Law, and with it comes more conversations on how to preserve forestland owned by individuals rather than larger companies.

Many times owners of these small tree farms had to sell timber or forestland to pay back property or estate taxes. Both of these issues could have been resolved if "they had just organized their assets better," but the subject is rarely broached. Oregon State University (OSU) Assistant Forestry Professor of Practice Tammy Cushing commented that though it has become less of a problem due to a higher federal exclusion amount, that has also “lulled people into not worrying about it.”

Perleberg says there are also misconceptions about how to preserve the forestland. Subdividing the parcels into equal shares may seem fair, but “fair is not equal, and vice versa. It’s about understanding what you want as a family in the future, … or helping your grown kids understand why you own the land. Beyond that, it’s about why you think they should own the land.”

See TJ Martinell, Preserving Small Forestland Through Estate Planning, The Lens, December 11, 2019.

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

December 13, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Tuesday, December 10, 2019

Final Regulations Confirm No Clawback on Gifting

TcjaThe increase in the estate tax exemption amount under the Tax Cuts and Jobs Acts (TCJA) is set to "sunset" or expire on December 31, 2025, and many advisors are encouraging their high net worth clients to make large gifts before that date as to "use up" the exemption amount. Some advisors were concerned that such gifting would trigger an additional transfer tax when the exemption reverted back to pre-TCJA amounts, allowing the Internal Revenue Service to "claw back" any used amount over the exemption rate at the time of the taxpayer's death.

On November 22, 2019, the IRS issued final regulations confirming that used gift tax exemption will not be “clawed back” upon the person’s death, even if they made gifts in excess of the estate tax exemption ultimately in effect at the time of death. Also, a surviving spouse who received unused estate tax exemption from a predeceased spouse — referred to as the Deceased Spousal Unused Exemption (“DSUE”) — can utilize the DSUE amount during lifetime or at death without fear of a clawback or loss of the DSUE.

Tax laws can change with every year and every election, but with the 2020 presidential election looming and the possibility of a shift in the dynamic of Congress, a reduction in gift and estate tax exemptions could take place prior to the end of 2025. Wealthy taxpayers should not wait until December of 2025 to make large gifts to make the most of the increased exemption amounts.

See Dickinson Wright, Final Regulations Confirm No Clawback on Gifting, Lexology, December 9, 2019.

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

December 10, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Sunday, November 24, 2019

When it Comes to Gifting, There's No Time Like the Present

GiftOften, allowing your loved ones to have gifts before your death can have tremendous benefits, not least of all watching them enjoying the presents during your lifetime. If you have an estate that is more than the federal exemption amount which, as of 2019, is $11.4 million, giving away assets before you pass can lower any estate taxes due. Any amount lower than $15,000 per year is tax-free, and an be used as an effective way to gradually help children and grandchildren understand and appreciate their family’s wealth.

From a tax perspective, a downside of gifting assets during your lifetime is that assets that have appreciated in value do not receive a “step-up” income tax basis. This means if you gift appreciated property or securities, the recipient will be subject to capital gains tax on the built-in appreciation when they sell the assets. It is important to consider when to gift these types of assets so that the loved one can receive the greatest benefit, rather than a possible burden.

There are numerous other vehicles that can be utilized to gift children and grandchildren assets or even funds during ones lifetime, including:

  • 529 College Savings Plans, which acts similar to a retirement account in that the money placed in it grows without being subject to federal income tax.
  • Uniform Transfer to Minor Act accounts, and any property placed in the trust are taxes at the child's tax bracket
  • Delaware Dynasty Trusts, which are notorious (or famous, however you choose to look at it) for lasting in perpetuity.

See When it Comes to Gifting, There's No Time Like the Present, Franklin Templeton, November 18, 2019.

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

November 24, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Tuesday, November 19, 2019

Estate and Gift Tax Exclusions Increase to $11.58 Million in 2020

IrsThe Internal Revenue Service (IRS) announced on November 6th the 2020 inflation adjustments for several tax items including the estate and gift tax exclusions and standard deductions. The current individual estate tax exclusion amount is $11.4 million, but for a person that passes away in 2020, the amount has increased by $180,000 to $11.58 million. The 2020 exclusion amount for married couples is twice that at $23.16 million. Taxpayers who are considering substantial lifetime gifts must “use or lose” the additional exemption before it reverts back to pre-2018 amounts in 2026.

One item that did not change is the annual gift tax exclusion, which is to remain at the 2019 amount of $15,000. But the annual gift tax exclusion amount for a US citizen to gift their non-citizen spouse increased by $3,000 to $157,000. If both spouses are citizens, there is no limit, and the gifts are excluded from federal estate and gift tax.

Also, the IRS increased the standard deduction to $12,400 for individual taxpayers and married taxpayers filing separate returns and to $24,800 for married taxpayers filing jointly. For heads of households, the standard deduction will increase to $18,650.

See Estate and Gift Tax Exclusions Increase to $11.58 Million in 2020, Hodgson Russ, November 18, 2019.

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

November 19, 2019 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Wednesday, November 13, 2019

CLE on Current Developments in Estate and Tax Planning 2019

ALI CLE and ACTEC are conducting a webcast entitled Current Developments in Estate and Tax Planning 2019 on Thursday, December 5, 2019 at 12:00 p.m. to 1:30 p.m. Provided below is a description of the event.

Why You Should Attend

Do you want to provide your estate planning clients with the best possible advice going into the new year? Are you up-to-date on the most significant developments to have come out of 2019? Set aside just 90 minutes to gain valuable insights on emerging trends in estate and tax planning, and learn how the newest cases, IRS guidance, and proposed regulations will impact your practice and your clients’ estate plans.

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, anticipate discussing:

• Inflation adjustments
• IRS Priority Guidance Plan
• Court decisions of significance, including: Kress, Jones, Dieringer, Kaestner / Fielding
• Presidential candidate proposals
• SECURE Act
• Anti-clawback regulations
• Estate and gift tax proposed legislation
• Uniform basis PLRs
• PLR on §1041 & grantor trusts
• Regulations on 170 SALT limitation workaround
• IRS Chief Counsel Advice on high/low trading prices

Additional breaking topics may be added as we get closer to the date of the program.

All registrants will receive a set of downloadable course materials to accompany the program.

Who Should Attend

Estate planners and other related professionals will benefit from this CLE on estate and tax planning developments jointly offered by the ALI CLE and ACTEC.

November 13, 2019 in Conferences & CLE, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Cases, New Legislation, Trusts, Wills | Permalink | Comments (0)

Saturday, November 2, 2019

Why Do People Hate Estate Taxes But Love Wealth Taxes?

MoneyPeople of all tax brackets seems to revile the federal estate tax but are enchanted by a proposed wealth tax. They both appear to slow down wealth inequality by taxing a low number of highly fortunate Americans, so why the difference in affections? Could it be simply that the estate tax has been in force for an extended amount of time while the wealth tax is shiny and new?

Both Elizabeth Warren and Bernie Sanders have proposed net worth taxes, which is how wealth taxes are usually defined. In April, Quinnipac University conducted a poll that found that 60% of respondents liked the idea of a 2% annual tax on “wealth over $50 million”; 34% opposed the idea. However, Quinnipac also ran a survey in November of 2017 and found that 48% of respondents in support of estate tax repeal while 43% wanted it to stay in place.

When the estate tax exemption was first created in 1942, it was set at $60,000 - equivalent just below $1 million today - and stayed there for a whopping 34 years. By the time lawmakers increased the estate tax exemption in 1976, that $60,000 exemption was worth about a quarter of what it had been in 1942. Opponents fought it on different grounds, including double taxation, and it was even repealed in 2001, only to be brought back from the grave just 10 years later. With the amount the exemption is at today, 99.4% of estate are exempt from it. This means that the top 10% of American income earners pay more than 90% of the estate tax; almost 40% is paid by the richest 0.1%.

See Joseph Thorndike, Why Do People Hate Estate Taxes But Love Wealth Taxes?, Forbes, October 30, 2019.

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

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

Tuesday, October 22, 2019

Estate Tax Can Pay Off for States, Even if the Superrich Flee

EstatetaxEnrico Moretti of the University of California, Berkeley, and Daniel J. Wilson of the Federal Reserve Bank of San Francisco recently conducted research on the likelihood of wealthy individuals remaining in states with estate tax by the time that they die. As expected, the older the wealthy get, the less likely they are to continue to live in states that charge estate taxes. But there is still a definite upside to state estate tax, and thus a possible reason for them to continue: estate taxes raised more money for states that had them than they lost in income-tax revenue when billionaires left to avoid the estate tax.

Many of the Democratic presidential candidates are proponents of imposing a wealth tax or even lowering the exemption amount on federal estate taxes. Unlike state estate taxes, the wealthy cannot simply move out of state to avoid the federal tax on their estate. Before President George W. Bush’s tax-cut package of 2001, the government offered a federal tax credit to cover the state tax liability, and as such many states passed estate taxes that exactly matched the available federal credit. Now, as of 2017, only 13 states impose their own estate taxes.

If all states imposed an estate tax, of course, the rich would have no choice but to pay it. Gabriel Zucman, an economist at the University of California, Berkeley, who has advised Elizabeth Warren on taxation issues, suggests that an easy way to maximize states’ estate tax revenues would be to reintroduce the federal credit, eliminating interstate tax competition.

See Eduardo Porter, Estate Tax Can Pay Off for States, Even if the Superrich Flee, New York Times, October 20, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law), Naomi Cahn (Harold H. Greene Professor of Law, George Washington University School of Law), and Matthew Bogin, (Esq., Bogin Law) for bringing this article to my attention.

October 22, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Friday, October 18, 2019

Article on Wealth Taxation: An Overview of the Issues

MoneyAlan D. Viard recently published an Article entitled, Wealth Taxation: An Overview of the Issues, Wills, Trusts, & Estates Law eJournal (2019). Provided below is an abstract of the Article.

Two Democratic presidential candidates, Senator Elizabeth Warren (D-Massachusetts) and Senator Bernie Sanders (I-Vermont), have proposed annual wealth taxes. Annual wealth taxes have been adopted in a number of European countries (many of which later repealed them), but not in the United States. Although the proposed wealth tax rates appear low, they are equivalent to high-rate income taxes. Due to the pronounced concentration of wealth in the United States, a wealth tax would be highly progressive. The tax would probably reduce national saving and investment to some extent, although capital inflows would ameliorate the investment reduction. Congress would likely add exemptions for selected assets, which would be distortionary and diminish the tax’s revenue yield. The tax would face compliance and administration challenges due to undervaluation and concealment of assets and it might be ruled unconstitutional in the absence of suitable modifications. Although those challenges would probably not be insurmountable, it would be simpler and more prudent to pursue any desired increase in tax progressivity through reforms of the income tax and estate and gift taxes.

October 18, 2019 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Tuesday, October 15, 2019

Wealthy Families Continue to Ditch Trusts

Trusts2In the United Kingdom, fewer and fewer wealthy families are utilizing trusts in their estate plants. According to Her Majesty's Revenue & Customs, there was a 6% drop in trusts that filed a tax return from 2017-18 compared to 2016-2017. 

One of the primary reasons that families have stopped placing their assets in trusts is that in 2006, then chancellor Gordon Brown announced reforms to stop trusts “being used to shelter wealth from inheritance tax”.  Trusts once upon a time were used for their privacy benefits, but as of 2017 there is now an online registry of Trusts in the UK. Mike Hodges, partner at accountancy firm Saffery Champness, admitted that, “A punitive tax regime and a host of draconian regulatory requirements [has created] a toxic combination which has compelled increasing numbers of people towards alternative options for asset protection.”

And there could be more reforms and changes to trusts in the future. “Both major parties in the last general election pledged different reform measures aimed at improving transparency and with such measures inevitably comes greater uncertainty over the future of trusts and an increased reluctance for people to use them,” Hodges said.

See Emma Agyemang, Wealthy Families Continue to Ditch Trusts, Financial Times, September 26, 2019.

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

October 15, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation, Trusts | Permalink | Comments (0)

Thursday, October 10, 2019

What Family Businesses Need to Know About Gifting Business Interests

GiftGifting interests in a family business to members of the younger generation is a great tool in any estate planning arsenal.  But if that younger family member is married, it is understandable if a family as a whole would not want to have the ex-spouse as a business partner.

So what to do in this conundrum? Some parents may believe that a spousal consent form, signed by either the son-in-law or daughter-in-law, stating that in the case of a divorce, no portion of the business interest would not be transferred to them. But this could go south very quickly, either by opening a can of worms by offending the in-law or by the restriction being illegal in a particular state. Even if the stock is not considered part of the marital estate, the value of it may be, and thus the soon-to-be ex-family member could receive a higher percentage of the marital assets.

A better solution would be discussing with your own child about having a marital agreement such as a prenuptial or post-nuptial agreement. The family business may be better protected with the child having an agreement that states that the stock is outside the marital estate and not subject to division in the event of divorce. It also means that the value of the stock would also be off the table.

See Christine Fletcher, What Family Businesses Need to Know About Gifting Business Interests, Forbes, October 9, 2019.

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

October 10, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0)