Wills, Trusts & Estates Prof Blog

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

Thursday, February 28, 2019

Imagine Canada Becoming a Tax Haven for Americans

CanadaDemocrats are eyeing the presidency with an abundance of candidates for the next election, and if they are successful, it appears that the well-off will be paying more in taxes. Though the type of taxes that will be increased is not yet settled, the idea is getting wide-spread approval across the country among the nation's other income brackets.

Avoidance efforts are sure to increase, and the possibility of the most invasive method may seem more and more promising - leaving the country. France had a tax similar to the proposed tax by Representative Alexandria Ocasio-Cortez, but even more extreme. While Ocasio-Cortez wants to place a 70% tax rate on those that make more than $10 million a year, France imposed a "supertax" of 75% rate for citizens making more than 1 million euros per year. The tax only lasted for two years, and during that time many prominent, wealthy individuals moved to Belgium, and French corporations did not attract senior managers.

The potential tax increase in America may not produce a similar exodus of millionaires, because quite simply, America is not France. We have many important epicenters of the technology industry, the finance industry and others. And unlike Europe, there is not an abundance of thriving countries nearby. If the wealthy do decide to leave, their only option may be Canada, where the majority of the population speaks English and the top income rate is 33%: despite some Americans thinking Canada is a quasi-socialist economy thanks to its single-payer health-care system, it’s not actually a high-tax country.

See Noah Smith, Imagine Canada Becoming a Tax Haven for Americans, Financial Advisor, February 13, 2019.

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

February 28, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation, Travel | Permalink | Comments (0)

Monday, February 25, 2019

Tax the Rich? Here’s How to Do It (Sensibly)

TaxcalcPoliticians on both sides of the aisle agree that the tax system is in dire need of repair. The argument is how to do it so that it is equitable and fair. Some want to fix it so that it generates more revenue; others want to use it as a tool to decrease the wealth inequality. Are those appropriate goals? Is there any surprise that the public distrusts taxes so much?

Democratic presidential candidates are suggesting numerous ways to increase the tax rates of the wealthy. Other Democrats are proposing headline grabbing ideas, such as Ms. Ocasio-Cortez’s Green New Deal. But there may be other ways to patch up the system without completely tearing it down.

High net-worth Americans legally skirt the estate tax, even before the exemption increase brought by the Tax Cuts and Jobs Act. One major avenue is by passing much of their riches to their heirs without paying taxes on capital gains - ever. According to the Center on Budget and Policy Priorities this accounts for “as much as about 55 percent for estates worth more than $100 million,” using this stepped-up basis. Closing this loophole would raise more than $650 billion over a decade, estimates the Congressional Budget Committee. 

Capital gains are taxed much less than income taxes. Warren Buffett says his secretary pays a higher tax rate than he does as the rate for capital gains top out at 20%, while a person making a $40,000 salary would be taxed at 22%. 

See Andrew Ross Sorkin, Tax the Rich? Here’s How to Do It (Sensibly), New York Times, February 25, 2019.

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

February 25, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation | Permalink | Comments (1)

Thursday, February 21, 2019

ING Trusts: The Hot Trend in HNW Estate Planning

TrustsThe tax reforms reflected in the 2017 Tax Cuts and Jobs Act continue to influence high net-work clients, especially the increased estate tax exemption, which at the moment is temporary until 2026. Incomplete Non-Grantor trusts, or ING trusts, can generate significant savings both in income taxes and in overall transfer taxes, meaning that it can be worthy to explore the ING trust strategy.

Central to the ING trust strategy is the presence of an “adverse party or parties" that have the ability to control the distributions of the trust to its beneficiaries. The parties can often include the creator of the trust or even the adult children of the creator. In many states - except New York - ING trusts enjoy reduced income taxes or even no state income tax at all. ING trusts are usually created in states that do not tax trust assets regardless of where the client lives.

Both the proposed and final Section 199A regulations complicate many non-grantor trust strategies by adding a new provision that requires aggregation of two or more trusts in certain circumstances. This is generally required when the trusts have substantially the came beneficiaries or grantors. For tax saving purposes, ING trusts will be most valuable to clients who have multiple natural beneficiaries who can each serve as beneficiary of one trust.

See Robert Bloink and William H. Byrnes, ING Trusts: The Hot Trend in HNW Estate Planning, Think Advisor, February 13, 2019.

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

February 21, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation, Trusts | Permalink | Comments (1)

Wednesday, February 20, 2019

Bill Gates Says he Should Pay Higher Taxes, Doesn't 'Deserve' his Fortune

BillgatesBill Gates recently claimed in an interview with Daily Mail that he does not believe that he paid enough in taxes, though he did everything legally and has paid more than $10 billion over the years. He is worth an estimated $96.8 billion dollars today, but claims that he does not "deserve" his massive fortune, that "nobody does."

“It has come through timing, luck, and through people I worked with. I certainly worked hard and I think software has been a beneficial thing, but I benefited from a structure too,” Gates said. He does not plan to pass on the entire amount to his children; instead, Gates and his wife to donate to their charity that helps fight disease and poverty in other countries.

The Microsoft co-founder says that he was in favor of raising the inheritance tax, but not necessarily to the point of what some politicians have proposed. Independent Vermont Senator and now Presidential candidate Bernie Sanders wants to propose an increase the estate tax to a rate of 77% for those passing on assets in excess of $1 billion. Under this proposal, Gates would owe $73.54 billion, compared to $38.31 billion under current law.

The billionaire businessman, however, does believe there are ways to make the current tax code more progressive.

See Brittany De Lea, Bill Gates Says he Should Pay Higher Taxes, Doesn't 'Deserve' his Fortune, Fox Business, February 13, 2019.

February 20, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

Tuesday, February 19, 2019

Article on The Constitutionality of a National Wealth Tax

MoneyDawn E. Jensen & Walter E. Dellinger published an Article entitled, The Constitutionality of a National Wealth Tax, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

Economic inequality threatens America’s constitutional democracy. Beyond obvious harms to our nation’s social fabric and people’s lives, soaring economic inequality translates into political inequality and corrodes democratic institutions and values. The coincident, relentless rise of money in politics exacerbates the problem. As elected officials and candidates meet skyrocketing campaign costs by devoting more and more time to political fundraising—and independent expenditures mushroom—Americans lose faith and withdraw from a system widely perceived as beholden to wealthy individuals and corporate interests.

The United States needs innovative approaches to help rebuild foundational, shared understandings of American democracy, the American Dream, and opportunity and fairness. Tax policy provides one central context in which collective judgments about fundamental values help form national identity. We believe that a national wealth tax (that is, a tax on individuals’ net worth) should be among the policy options under consideration to support vital infrastructure, social service, and other governmental functions. Although not a new concept, a wealth tax may be an idea whose time has come, as inequality soars toward record highs.

Our aim in this Essay is to help ensure that a wealth tax is among the policy options available to Congress by challenging a common assumption that has unduly harmed its prospects: the belief that the U.S. Constitution effectively makes a national wealth tax impossible. We believe this conventional wisdom is wrong and its casual repetition has been harmful. Devising a progressive tax system that effectively taxes the wealthy is notoriously difficult, but whether a wealth tax is part of that system should depend upon the policy choices of democratically elected representatives, not faulty constitutional understandings.

February 19, 2019 in Articles, Current Affairs, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (0)

One in Five UK Baby Boomers are Millionaires

UnionjackBaby boomers over the age of 65 are dramatically increasing in wealth in the United Kingdom with a 96% increase in the median household wealth from 2006 to 2016, according to Netwealth, a wealth manager that analyzed the Office for National Statistics’ Wealth and Assets surveys. In 2006, those over the age of 65 owned 28% of UK's household wealth and 10 years later than number had increased to 36%.

This age group appears to be getting wealthier due to time and luck. The 10 years studied coincides with the “peaks and troughs of interest rates for the UK,” according to Evangelos Assimakos, investment director at Rathbones in Edinburgh. Banks cut interest rates and provided financial stimulus, and the result was an inflation in financial assets, including property and share portfolios. In fact, now 20% of baby boomers are millionaires.

Younger households do not appear to have fared quite as well. Citizens between the ages of 35 and 44 (Generation X) saw a 5% fall, while the 25 to 34 (Millennials) experienced a 2% decrease. Though these numbers do not seem dire or extreme, they are a far cry from the extravagant increase that the older generation has seen.

With great power - or money - comes great responsibility - or planning. Experts advise that parents or grandparents wanting to assist a child decide if they want to do so with a gift or a loan. If the person decides on a gift, certain decisions should be made on when to transfer the property or cash as to avoid the inheritance tax, which follows the "seven-year rule." Though becoming increasingly expensive, trusts still remain a viable option to transfer wealth to younger generations. 

See Nikou Asgari, One in Five UK Baby Boomers are Millionaires, Financial Times, February 8, 2019.

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

February 19, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, February 6, 2019

Estate Tax Hike to Time with Older Billionaires Dying

MoneyThe increase of the estate tax exemption in 2017 has been reiterated several times, with the new amount standing at $11.8 million, with a top rate of 40%. Democrats are posing a new policy for several presidential candidates that stipulate lowering the tax exemption amount back down and increasing the tax rate for the very wealthy.

Senator Bernie Sanders has an aggressive policy, stating he would decrease the federal estate tax exemption to estates worth $3.5 million, and imposing progressively higher rates that top out a 77% for billionaires. Sanders refers to the proposal as the “For the 99.8 Percent Act" because it would only effect the top .2% of American households.

The timing of using the estate tax to tap into the accumulated wealth of high-net worth citizens may work out better as billionaires are becoming elderly. The Forbes' list of 400 richest Americans include 128 individuals that are over the age of 75. Morbidly, this estate tax hike would slide in to intervene in the largest intergenerational transfer of wealth and pass a hefty chunk to the government. According the research of Equality of Opportunity Project, America’s one-percenters have a higher life expectancy of the mid-to-low 80s.

See Jordan Weissman, This Is a Great Time to Hike the Estate Tax, Because America’s Billionaires Are Getting Really, Really Old, Slate, February 1, 2019.

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

February 6, 2019 in Current Affairs, Estate Planning - Generally, Estate Tax, New Legislation | Permalink | Comments (1)

Article on Home Repair: A Handy Lawyer's Guide to Fixing a Damaged QPRT

QPRTIt is a universally acknowledged that a wealthy client in possession of a good beach house must be in want of a Qualified Personal Residence Trust (QPRT). But QPRTs are not right for everyone - and even when they do make sense at the outset, family, financial, tax, and other circumstances can change, lessening the effectiveness of the QPRT as a wealth transfer tool making it a detriment to the family. This article will outline briefly the nuts and bolts of the QPRT construction and the substantial estate planning benefits that can be reaped from a healthy QPRT. We will then describe common (and uncommon) scenarios when a QPRT can lose effectiveness and illustrate methods to repair any damage and shore up a positive outcome.

See Michael H. Barker, Adam M. Damerow, Caitlin N. Horne, & Lauren A. Jenkins, Home Repair: A Handy Lawyer's Guide to Fixing a Damaged QPRT, Probate & Property Magazine, Vol. 33, No. 1, January/February, 2019.

February 6, 2019 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Trusts | Permalink | Comments (0)

Tuesday, February 5, 2019

Article on Trusts & Estates

TrustestateSteven Cunningham recently published an Article entitled, Trusts & Estates, 68 Syracuse L. Rev. 1063-1085 (2018). Provided below is an introduction of the Article.

This article covers notable regulatory, statutory, and case law developments related to trusts and estates for the Survey period of July 1, 2016 to June 30, 2017.

Part I of this Article discusses changes that occurred at the federal level. This discussion will summarize noteworthy administrative activity and case law from the United States Tax Court, including the proposed regulations under Internal Revenue Code § 2704 and the United States Tax Court decisions in Estate of Powell v. Commissioner and Estate of Heller v. Commissioner. Part II surveys the trust and estate developments specifically in New York, including new legislation, regulations, and case law.

As a threshold matter, it is worth noting the federal and New York exemption amounts applicable in the Survey period. At the federal level, the amount of combined gross assets and prior taxable gifts needed to trigger an estate tax rose from $5,450,000 in 2016 to $5,490,000 in 2017. The federal annual gift tax exclusion remained at $14,000 throughout the entire Survey period. The threshold for gifts to a noncitizen spouse not includable in a taxpayer’s gifts increased from $148,000 in 2016 to $149,000 in 2017. Meanwhile, New York continues to adhere to a schedule where equalization between the state exemption amount and the federal amount will begin on January 1, 2019. Accordingly, the basic exclusion amount in New York rose from $4,187,500 (for decedents who died on or after April 1, 2016 and on or before March 31, 2017) to $5,250,000 (for decedents who died on or after April 1, 2017 and on or before December 31, 2018).

February 5, 2019 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, New Cases, New Legislation, Trusts, Wills | Permalink | Comments (0)

Monday, February 4, 2019

Bernie Sanders Proposes Estate Tax of up to 77% for Billionaires

Taxes2Vermont Senator Bernie Sanders is contemplating a second run for President in 2020. Part of his plan would be to increase the estate tax for the very wealthy, which would consist of only 0.2% of the population. Sanders says he would lower when the current estate tax kicks in, taxing estates between $3.5 million and $10 million at 45% and increase the rate gradually until it hits 77% for those that are valued at $1 billion. Polls show that voters are becoming more receptive to the idea of increasing taxes on the wealthy.

Several other Democrats are also proposing tax legislation that would attempt to decrease the income inequality of the country. The estate tax exemption was increased to $11 million in 2017 under President Trump, and other Republicans are attempting to take it further by repealing the tax completely. 

See Arit John & Laura Davison, Bernie Sanders Proposes Estate Tax of up to 77% for Billionaires, Financial Advisor, January 31, 2019.

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

February 4, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)