Wills, Trusts & Estates Prof Blog

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

Tuesday, April 16, 2019

California Estate Tax: Gone Today, Here Tomorrow?

RobinhoodRecently, California State Senator Scott Wiener introduced a bill that would impose estate, gift, and generation-skipping transfer tax on any transfers, both during life and at death, after December 31, 2020. California law dictates that if the legislation passes any new bill that imposes transfer tax, the law does not go into effect unless the voters approve it. So if the bill passes the California Legislation, the bill will be on the November 2020 ballot.

Under the proposed bill, taxpayers will be subject to a 40% tax rate of all transfers, same as the federal rate. There will be a credit for transfer taxes paid to the federal government to avoid double taxation. But where the federal basic exclusion amount for each type of transfer is $11,400,000 and is adjusted for inflation, the California exclusion amount will only be $3,500,000 and will not be adjusted for inflation. Among several of the issues and complexities that accompany the bill, with a full credit for federal transfer taxes, only estates between $3,500,000 and $11,400,000 will be subject to the California tax. Essentially, an estate of a Californian worth $100,000,000 would pay the same California estate tax as someone with an estate of $11,400,000. There is also no marital deduction in the current draft, but this is most likely an oversight and should be resolved.

All of the monies generated from the bill, including the transfer taxes themselves, interest, and penalties would fund the proposed Children’s Wealth and Opportunity Building Fund, which will fund programs to help address socio-economic inequality.

See California Estate Tax: Gone Today, Here Tomorrow?, National Law Review, April 4, 2019.

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

April 16, 2019 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation, Wills | Permalink | Comments (0)

Tuesday, April 9, 2019

What to Know When Gifting the Family Vacation Home

Trusts2The Tax Cuts and Jobs Act allows wealthy individuals to transfer up to $11.4 million at the time of their death without fear of being hit by estate taxes. But this exclusion amount only lasts until 2025 unless it becomes permanent.

When a person transfers property during his or her lifetime, the recipients must account for it according to the original price paid, known as the basis, if they sell it after receiving it. For those that want to take advantage of the higher estate tax exclusion, a good rule of thumb is to gift property that they believe the recipient will retain instead of selling. Family vacation homes usually stay in the family for years and possibly even generations.

But a client should make sure that their children or other family members want the property for their own personal use before gifting it to them. If they say that they do, the good news is that passing the home on during your lifetime doesn’t mean relinquishing your use or even control of it. Instead of transferring it outright, you can transfer the vacation property into a trust or into a limited liability corporation. A common structure used for vacation homes is called a qualified personal residence trust, or QPRT, to retain control of using the residence for the rest of the client's lifetime, says Scott Cripps, head of estate planning for Morgan Stanley’sFamily Office Resources group. Upon the grantor's death, the property would transfer to the designated beneficiaries at death.

See Amy Schultz, What to Know When Gifting the Family Vacation Home, Barron's, March 31, 2019.

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

April 9, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, New Legislation, Trusts | Permalink | Comments (0)

Monday, April 8, 2019

Article on We Can Do It? How the Tax Cuts and Jobs Act Perpetuates Implicit Gender Bias in the Code

RiveterAnne Bauer recently published an Article entitled, We Can Do It? How the Tax Cuts and Jobs Act Perpetuates Implicit Gender Bias in the Code, Tax Law: Tax Law & Policy (2019). Provided below is an abstract of the Article.

In December of 2017 Congress passed sweeping tax “reform” legislation known as the Tax Cuts and Jobs Act. This article highlights three aspects of the legislation that reflect implicit bias in the Code and facilitate the marginalization of women as a result of tax policy that fails to consider underlying demographic data with respect to the equitable distribution of tax expenditures. Specifically, this article analyzes the elimination of the alimony inclusion/deduction regime under §§ 71 and 215 of the Code, the disallowance of a deduction for legal fees associated with the settlement of sexual harassment and abuse claims that include nondisclosure agreements under § 162(q), and specific provisions designed to promote small businesses that exclude the vast majority of businesses owned by women.

This article proposes that real tax reform should endeavor to eliminate implicit bias in the Code by addressing the circumstances giving rise to the need for alimony in the first place; the barriers to success faced by women in the market, including discrimination, sexual harassment, and sexual assault; and the circumstances that propel female entrepreneurs toward the types of business models that are excluded from substantial benefits under the Code.

In order to effectuate the equitable distribution of tax expenditures and facilitate economic efficiency through tax policy, real tax reform should reevaluate the normative view of marriage, families, and traditional business models reflected in the Code taking into consideration underlying demographic data with respect to the effects of tax legislation on discrete groups of people. Further, real tax reform would adopt a more holistic approach that takes into consideration the interconnected nature of the private and public lives of women struggling to participate equitably in the market and achieve financial independence and economic self-sufficiency.

April 8, 2019 in Articles, Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0)

Monday, March 25, 2019

Estate Planning is Risky Business, What Should you do?

RiskyThe future is uncertain and likewise estate planning is uncertain and fraught with unseen perils and risks. Investment returns are not guaranteed, interest rates are unquestionably going to change, and some techniques are dependent on when you die, and of course, tax laws change all too often.

The only thing that is guaranteed is that nothing is guaranteed. Estate plans need regular maintenance and check up as these alterations may demand tweaks to remain optimal. Here are a few tips to assist in mitigating risks:

  • Creating a collaborative team of financial advisors, tax professionals, and estate planners will help identify more issues with your plan, as identifying issues is the first step in resolving them.
  • Get life insurance! A policy can offset several different contingencies in your plan in case tax laws dramatically change, step up basis for assets transferred to certain trusts, and other risky situations.
  • Pay attention to the formalities and minutia of certain paperwork, and if you are not an expert - get an expert.
  • Use an institutional trustee instead of a family member or friend. The advantages of the policies and procedures of independent trustees greatly outweigh the financial aspect of paying them.
  • Establish trusts in jurisdictions that have amicable laws for them. Using these jurisdictions might reduce some of the legal, tax and other risks your planning is exposed to.
  • Like a cake, add layers upon layers to the estate plan. If asset protection is a concern, layer insurance, and umbrella policies to serve as a line of defense before trusts become involved.

See Martin Shenkman, Estate Planning is Risky Business, What Should you do?, Forbes, March 21, 2019.

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

March 25, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Friday, March 22, 2019

5 Estate Planning Strategies for Singles

SingleSingle people may have been enjoying the exotic life with no children - socking away money, getting away on numerous weekends, and focusing 100% on their career. But it may not be likely that they put much effort into their estate planning or retirement plans.

Here are 5 tips for single clients as they near retirement:

  • Execute a power of attorney and a healthcare proxy.
    • Even those without children do not live forever, though mortality may not be shouting in their face like a teenager that looks just like them. Establishing a power of attorney and a healthcare proxy will allow another person to make important financial and medical decisions for a single client, if it becomes necessary to do so.
  • Make a will.
    • With no direct descendants nor a spouse, a will is highly efficient as disposing of assets. The client can name the executor to handle the affairs, and a simple solution can be to name a revocable trust as the beneficiary of the estate.
  • Create a revocable trust.
    • The client should go ahead and establish the trust and name themselves as the primary beneficiary.
  • Fund the trust now.
    • If the client funds the trust during their lifetime, and are later incapacitated, the successor trustee will be able to use the funds for the client's care. Without it, those close to them may have to petition the local probate court to have a guardian or conservator appointed.
  • Consider estate taxes.
    • Single clients have no direct descendants, so any beneficiaries will be receiving a windfall. If giving these beneficiaries more and the government less is important, the client should consider charitable giving as a means to lower taxes.

See Christine Fletcher, 5 Estate Planning Strategies for Singles, Forbes, March 15, 2019.

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

March 22, 2019 in Current Affairs, Disability Planning - Health Care, Disability Planning - Property Management, Estate Administration, Estate Planning - Generally, Estate Tax, Guardianship, Trusts, Wills | Permalink | Comments (0)

Monday, March 11, 2019

How U.S. Tax Rules Apply to Inheritances and Gifts from Abroad

GiftAs Americans become more global within this modern society, they are asking estate planners questions about properties outside of the country's borders. One of the popular questions is whether an inheritance or gift from abroad will be taxed if brought into the United States. Usually, bequests are not subject to the income tax, and transfers by gift of property not situated in the U.S. from foreign nationals not domiciled in America are not subject to U.S. gift taxes. But depending on the circumstances, certain laws may still apply.

Foreign nationals who are green card holders are generally considered domiciled in the United States and as such are defined as lawful permanent residents. Residents and citizens are covered by one aspect of the estate and gift tax laws, and national without a green card may be considered domiciled for tax purposes. Transfers by foreign nationals not domiciled in the United States are covered by a different estate tax structure that imposes taxes on transfers of certain property situated in the United States.

If the decedent who bequeaths the asset is neither a U.S. citizen nor a foreign national domiciled in the United States, no U.S. estate tax is imposed on the transfer. There is also no tax resulting from the death transfer upon the beneficiary's receipt of a bequest. The United States also does not impose an income tax on inheritances brought into the country.

The United States has gift tax treaties which may eliminate the U.S. gift tax on certain transfers that are otherwise subject to gift taxes under the Code. An exemption from gift tax under a treaty is made on a gift tax return.

See How U.S. Tax Rules Apply to Inheritances and Gifts from Abroad, Find Law.com.

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

March 11, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Travel, Wills | Permalink | Comments (0)

CLE on Estate Tax Return Preparation

CLEThe American Bar Association is presenting a webcast entitled, Estate Tax Return Preparation, on Thursday, April 25, 2019 from 1:00 - 2:30 PM Eastern. Provided below is a description of the event.

This session provides a practical understanding of the issues involved in preparing the federal estate tax return. This course will give you the skills you will need to use the Form, when and how to claim unused DSUE, GST Tax Issues, and special valuations and elections.

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

March 11, 2019 in Conferences & CLE, Current Events, Estate Planning - Generally, Estate Tax | Permalink | Comments (0)

Saturday, March 2, 2019

Are You Giving Your Heirs an Unanticipated Tax Bill?

BillThe changes brought by the 2017 Tax Act made it so that many clients did not have to worry about the estate tax as the exemption was dramatically increased. However, if an estate plan remains in place that directs assets to a credit shelter trust, unnecessary capital gains tax may be owed. The reason is that the income tax basis of the assets held in a the trust is not stepped up in value at the death of the second spouse because the assets are not included in that spouse’s estate.

The challenge  is to move assets out of the credit shelter trust and into the survivor’s estate to obtain the income tax-saving step-up when the survivor dies. Even though originally credit shelter trusts are irrevocable, many states have acknowledged changed circumstances that make some trusts impractical, outdated or exposed to unanticipated taxation. New state laws are here to help that.

Terminating a non-charitable irrevocable can be accomplished without court approval, so long as there is consent of the trustee and all beneficiaries, and provided the termination is not inconsistent with a material purpose of the trust. As the purpose was to reduce taxes, terminating would align with that goal. Modifying and decanting the trust may also be avenues to pursue. Decanting a trust means that the trustee directs the trust property to a new trust that contains different terms from the original trust but provide the same protections.

See Nancy S. Hearne, Are You Giving Your Heirs an Unanticipated Tax Bill?, Saul.com, March 1, 2019.

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

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

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)