Wills, Trusts & Estates Prof Blog

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

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)

Tuesday, October 27, 2020

IRS announced 2021 inflation-adjusted rates

IrsIn Rev. Proc. 2020-45, the IRS announced the 2021 inflation adjusted rates including:

The gift and estate tax exclusion increased to $11.7 million for deaths in 2021 (up from $11.58 million for deaths in 2020).

The annual gift tax exclusion remains the same at $15,000.

Note that these amounts could change if Democrats win the White House and both Houses of Congress. Candidate Biden is on record stating that the estate tax exclusion should be limited $3.5 million per person and the gift tax exclusion should be separated from the estate tax exclusion and reduced to $1,000,000.


October 27, 2020 in Current Events, Estate Tax, Gift Tax | Permalink | Comments (0)

Potential Estate Planning Implications of 2020 Election Results

EstateplanningAs the presidential election approaches, there has been a lot of discussion surrounding the potential tax law changes. Although nothing is for certain, there are many things that certainly could happen, especially if Joe Biden is elected president and the Democrats gain the majority of both the Senate and the House. 

Potential Tax Law Changes include:

  • Lower Transfer Tax Exemptions
  • Higher Transfer Tax Rates
  • No Income Tax Basis Adjustment at Death
  • Taxation of Capital Gains at Ordinary Income Tax Rates
  • Elimination of Other Popular Estate Planning Tools


As the potential tax changes loom about, there are few Year-End Planning Considerations that you should take into account before it is too late:

  • Use "bonus" Exemptions Before They Expire
  • Use Popular Planning Tools Before They Are Eliminated
  • Take Advantage of Low Interest Rates and Depressed Asset Values 
  • Build In Potential Access to Transferred Funds
  • Consider Accelerating Capital Gains
  • Do Not Wait Until December 31st 

As everyone' situation is unique, some of these considerations may not be worthy of your consideration, but it is always better to consider potential options before the options no longer exist. 

See Potential Estate Planning Implications of 2020 Election Results, Winstead PC, October 19, 2020. 

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

October 27, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, October 21, 2020

Tax Planning by Accelerating Gain Recognition into 2020

TaxDemocratic Presidential nominee Joe Biden has recently released a tax plan which may significantly increase the capital gain tax. The plan includes a proposal, which if accepted, "would eliminate the preferred 20% rate on long-term capital gain and qualified dividends for taxpayers with more than $1 million in taxable income."

The Biden plan would subject this type of income to tax at regular tax rates, "with the highest bracket ordinary income tax rate returning to the 39.6% rate in effect prior to the Tax Cuts and Jobs Act of 2017."

"If this proposal is adopted wholesale, it would mean that capital gains subject to a 20% tax rate if recognized in 2020, could be subject to nearly double that tax rate in 2021 or 2022 (or later)."

When tax rates increases, it is possible for a taxpayer to to save income tax by accelerating income tax gain and measuring the potential opportunity cost of paying tax early. 

"By paying tax earlier, the taxpayer will not have the investment returns from funds used to pay the tax because the dollars used to pay the tax are no longer available for investment."

Below are a few ways taxpayers can cause the recognition of gain if interested in accelerating the gain and paying the income tax in 2020:

  • For those taxpayers who own highly appreciated publicly-traded stock, the taxpayer can simply sell and then repurchase the securities. The “wash sale” rule of Section 1091, which generally disallows losses when a shareholder sells securities for a loss and repurchases the same or substantially identical stock or securities, does not apply to disallow recognized gains.

  • Taxpayers who make installment sales in 2020 may elect out of installment sale treatment (causing all of the gain to be recognized in 2020 as opposed to be deferred until the future).

    Taxpayers who sold a company and reported part of the purchase price as an installment sale in prior years can generally accelerate the recognition of the capital gain on the installment sale by either pledging the note as security for a bank loan (which generally accelerates immediate recognition up to the amount of loan proceeds), or by selling, gifting, or exchanging the note. For example, taxpayers may consider gifting or selling the notes to a non-grantor trust, which would cause the gain to be recognized.

  • For taxpayers with closely-held business interests, with expectations of selling such business interests in 2021 or 2022, there are a number of ways to recognize the gain at today’s 20% rate, thereby generating basis that can be used to offset gain against sale proceeds in the future (which such proceeds may be taxable at the 39.6% tax rate)

See Stephanie J. Derks & Jason J. Kohout, Tax Planning by Accelerating Gain Recognition into 2020, Foley & Lardner LLP, October 14, 2020. 

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

October 21, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Friday, October 16, 2020

Final regs. outline trust and estate expenses still deductible under TCJA

The IRS issued final regulations "clarifying that certain expenses incurred by, and certain excess deductions upon the termination of, an estate or non grantor trust are not affected by the suspension of miscellaneous itemized deductions for tax years 2018 through 2025." 

Section 67(g), known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, disallows itemized deductions for any tax year beginning after December 31, 2017, and before January 1, 2026. Prior to the TCJA, itemized deductions were allowed so long as their aggregate amount exceeded 2% of adjusted gross income. 

Section 67(e) discusses the computation of the adjusted gross income in regard to an estate or trust and exceptions that may arise in the computations. 

The IRS and Treasury recognized that excess deductions may consist of "(1) deductions allowable in arriving at AGI; (2) non-miscellaneous itemized deductions; and (3) miscellaneous itemized deductions."

Section 67(g) only suspends the third type of deduction. "Consequently, the proposed and final regulations provide rules for trustees to determine for a terminating estate or trust the character and amount of each deduction type and, therefore, their respective allocations to, and applicable limitations upon, the succeeding beneficiaries.:

See Paul Bonner, Final regs. outline trust and estate expenses still deductible under TCJA, The Tax Adviser, September 22, 2020. 

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

October 16, 2020 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts | Permalink | Comments (0)