Wills, Trusts & Estates Prof Blog

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

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)

Friday, October 4, 2019

Why the Rich Need to Plan for a Tougher Estate Tax, Not a Wealth Tax

EstatetaxThe debate of how to resolve wealth inequality in the country is a hot topic, especially when it comes to the upcoming presidential election. Some candidates are pushing for an estate tax that will hit taxpayers at lower tax brackets, while others are of the belief that an annual wealth tax for citizens that are worth a certain amount per year would lower the disparity among income earners.

Both Bernie Sanders and Elizabeth Warren have put forth a potential wealth tax during their campaigns, but any new wealth tax would most certainly face constitutional challenge, and it probably wouldn’t raise the amount of revenue its supporters hope for. By contrast, an estate tax has been proven to bring in revenue to the Treasury. The exemption amount has been drastically scaled down recently, however, by the enactment of the Tax Cuts and Jobs Act by President Trump in 2017. At the moment only individuals that are worth more than $11.4 million at death are subject to the federal estate tax, while in 2000, the estate tax kicked in for an individual estate worth just $675,000.

Beth Kaufman, an estate lawyer with Caplin & Drysdale in Washington, D.C., says that “The exemption under the estate tax has risen astronomically. Probably by most measures, it’s too high.” Sanders' For the 99.8 Percent Act would bring the exemption rate down to $3.5 million for an individual. The rate the excess would be taxed at would be progressive; thus instead of taxing a flat rate of 40%, the amount from $3.5 million to $10 million would be taxed at 45%, 50% between $10 million and $50 million, 55% for the value in excess of $50 million and 77% over $1 billion.

See Ashlea Ebeling, Why the Rich Need to Plan for a Tougher Estate Tax, Not a Wealth Tax, Forbes, September 25, 2019.

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

October 4, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Thursday, October 3, 2019

CLE on 45th Annual Trust and Estate Conference at USC Gould School of Law

CLEThe University of Southern California Gould School of Law is holding a conference entitled, 45th Annual Trust and Estate Conference, on Friday, November 22, 2019 at The Westin Bonaventure Hotel in Los Angeles, California. Provided below is a description of the event.

why attend?

High-Quality Education

For over 40 years, USC Gould’s Trust and Estate Conference has provided high-quality continuing education customized for trust, estate planning, probate and elder law professionals.

Practical and Realistic Solutions

The Conference has a proven track record of teaching practical and realistic solutions to everyday and unexpected problems in estate planning, trust administration, probate, trust and estate litigation, elder law and client relationships. Speakers often share “howto” techniques and forms used in their practices.

Unrivaled Networking

Over 500 of your peers registered for the Conference last year for an unrivaled networking and learning opportunity from both the speakers and your professional colleagues.

who should attend?

The Conference is specially tailored for trust, estate planning, probate and elder law professionals including attorneys, paralegals, trust officers, accountants, financial institution executives, private professional fiduciaries, wealth management professionals, fiduciary officers, underwriters and insurance advisors.

what’s included?

Registration includes all sessions, continental breakfast, networking breaks, luncheon presentation, continuing education credit, and print and downloadable copies of the practical Conference Syllabus including the popular Resource Guide, a Trust and Estate Professional Directory covering Los Angeles, Orange and San Diego counties.

Free WiFi and an Event App will also be available for attendees at the Conference!

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

October 3, 2019 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Cases, New Legislation, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Sunday, September 29, 2019

Old Estate Plans May be Harmful to Your Health

WillThe main reason that many people do not update their estate plan or will is because they believe that "nothing has changed" in their lives. The passing of time may seem monotonous, but it is still unlikely that an event has not occurred that alters some aspect of your life, no matter how small. Even if you still do not believe that anything has overtly changed in your realm, the tax laws may have still changed. If you have not looked at your estate plan since the 2017 Tax Cuts and Job Act overhaul, you may be shocked to see that "everything" may have changed.

Here are a few other things that may trigger a change in your estate plan, even if you did not think so on the face:

  • Marriage, either yours or an heir/beneficiary
  • Death of an heir/beneficiary or other person named in documents
  • Birth/adoption of a new child or grandchild
  • Move to a new state
  • Significant change in economic situation
  • Change in jobs (make bring changes in beneficiary designations)
  • Change in wishes
  • Health issues that are new, worsening or even getting better
  • Change in relationship with anyone named in documents
  • New lawsuit or resolution of a lawsuit
  • Change in life insurance policies
  • Change in state laws that could effect any aspect of your estate plan

See Martin Shenkman, Old Estate Plans May be Harmful to Your Health, Forbes, September 27, 2019.

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

September 29, 2019 in Current Affairs, Disability Planning - Property Management, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Wednesday, September 25, 2019

Inflation Adjusted 2020 Figures Announced

IrsThe Internal Revenue Service has announced the inflation adjustments for the estate and gift tax exclusion, the generation-skipping transfer tax exemption, the gift tax exclusion and other estate planning rates for 2020.

  • The federal estate and gift tax exclusion amounts will increase by $180,000, from $11.4 million to $11.58 million.
  • The generation-skipping transfer (GST) tax exemption will also going to be $11,580,000.
  • The annual gift tax exclusion will remain the same at $15,000 per donor per donee per calendar year.
  • Trust and estate income tax rate brackets have also been released.
    • If income is less than $2,600, the tax is 10% of taxable income.
    • If income is over $2,600 but not over $9,450, the tax is $260 plus 24% of what is over $2,600.
    • If income is over $9,450 but not over $12,950, the tax is $1904 plus 35% of what is over $9,450.
    • The highest bracket comes in at amounts over $12,950, in which the tax is $3,129 plus 37% of the excess over $12,950.

See James V. Roberts, Inflation Adjusted 2020 Figures Announced, JamesVRoberts.com, September 25, 2019.

September 25, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (2)

Monday, September 23, 2019

For Noncitizen Spouses, Beware Estate and Gift Taxes

DeathtaxesOften times a couple can come in for a basic consultation that seems simple, but then a situation arises that has serious tax repercussions. For Sean Wilson, a senior director in the product and portfolio solutions and distribution area of TIAA Wealth Management in New York, one such couple dealt with a husband that was an American citizen while the wife was a French citizen.

Married couples that are both US citizens get to enjoy the benefit of the unlimited marital deduction, while a couple that has parties of different citizenships do not. Well, the American spouse can receive gifts from their spouse without fear of paying gift or estate taxes, but the noncitizen cannot. For those married to noncitizens, the maximum amount they can gift to their spouse tax-free each year is limited; in 2019 the cutoff is $155,000 and any gifts in excess of that require filing a gift tax return. At the death of the citizen spouse, estate taxes may come in to play. Because the noncitizen spouse does not qualify for the unlimited marital deduction, any amount that is over the federal exemption amount would be subject to federal estate tax.

Not all hope is lost, however, as there are some options to save a multi-citizenship couple from suffering from estate taxes. One is an irrevocable life insurance trust (ILIT), a type of living trust that's designed to hold a life insurance policy. The trust would be named the beneficiary, with the noncitizen spouse as the beneficiary of the trust, and the assets in the trust are not taxable. The other option is a qualified domestic trust (QDOT), a special kind of trust that allows surviving noncitizen spouses to take the full marital deduction on estate taxes. One trustee must be an American citizen or qualified domestic corporation.

See Ben Mattlin, For Noncitizen Spouses, Beware Estate and Gift Taxes, Financial Advisor, September 19, 2019.

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

September 23, 2019 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)

Wednesday, September 18, 2019

Dynasty Trusts: Best Way to Protect Family Wealth

RussiandollsAn irrevocable trust ensures a smooth, usually drama-free transfer of assets than a will, while also offering significant tax advantages, asset protection, privacy, and control. Dynasty trusts, which can last hundreds of years when they are allowed to do so, can provide the greatest benefit of all trusts.

Many states have laws against perpetuities, so it is important to take into account the location of the trust. Five states allow perpetual trusts, while six states allow trusts to last up to 360 years. If you are in a jurisdiction that is not one of these 11 states, a financial advisor well coursed in dynasty trusts can walk you through how to set one up in a state that does.

The estate tax is only assessed to dynasty trusts once, even though it can endure for several generations and increase in value exponentially. As a nice little bonus, trust assets are not subject to generation-skipping transfer tax (GSTT), which are notorious for complication bequests to grandchildren. Furthermore, a dynasty trust can expand a settlor's control over the trust assets for many generations, ensuring the family's legacy.

As with many trusts, a dynasty trust can also protect assets from creditors, including ex-spouses of family members. Because the assets are owned by the trust - not the beneficiaries - those assets cannot be included in jointly held estate. There is also increased privacy with trusts, keeping distribution of property out of the public eye, whether it be during a person's life or at the time of death.

See Harvey Bezozi, Dynasty Trusts: Best Way to Protect Family Wealth, News Max, September 16, 2019.

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

September 18, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)