Wills, Trusts & Estates Prof Blog

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

Thursday, May 21, 2020

Why an Estate Freeze Makes Sense Now

Estate_freeze@2x_opt The U.S. dollar has appreciated against the Canadian dollar by close to 9 per cent. As of May 19, the S&P/TSX has recovered more than half of its losses while the Canadian dollar remains down by more than 5% compared to its value on February 21. This has caused Canadians to update their estate plans to ensure that their last will and testament is current. Further, they are learning how they can pass along their wealth to their children or beneficiaries with the least amount of tax on death. Given the global public health crisis due to COVID-19 and its economic impact, now is a perfect time for tax planning using an estate freeze.

The recent dip in the stock market and the Canadian dollar has actually sprung new estate planning opportunities. Canadian residents have begun to use a tax plan known as an estate freeze. In an estate freeze you essentially take certain assets that you own today, freezing the tax on death at today’s value, retaining the voting control while passing future growth to children or other designated beneficiaries.

In Canada, when one dies they are assumed to have sold all of their assets before they died, with the exception of spousal transfers. Even though the consequences are not as harsh in the United States, this provides plenty incentive in freezing the values of your estate today as opposed to the higher value it will be at the time of your death. 

The freeze must be valued at fair market value, which is very low at the moment given the economic crisis we are in due to the pandemic. This means huge tax savings for your future estate, which means better financial security for your family!

See David Altro & Bradley Richard Thompson, Why an Estate Freeze Makes Sense Now, Globe Mail, May 20, 2020. 

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

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

Wednesday, May 20, 2020

IRS Issues FAQs Regarding COVID-19 Relief for Estate and Gift Tax Filings

FAQOn April 23, 2020, the IRS issued FAQs regarding "COVID-19 Relief for Estate and Gift" in response to issues raised by the extension of time granted to taxpayers to fulfill their estate, gift, and generation-skipping transfer (GST) tax obligations. The FAQs includes these topics:

(1) Form 706 Due Dates 

If a Form 706 and payment of an estate tax are due on May 15, 2020, the return and payment are now due on July 15, 2020. However, Notice 2020-23 does not postpone payment of a tax that was due before April 1, 2020, interest will accrue from the date payment was due until the date the payment is made. 

Also, if the time to file for a six-month extension to Form 706 expires between April 1, 2020 and July 15, 2020, the extension request can be filed on or before July 15, 2020; however, the six-month extension will be calculated from the original due date. Under section 2032(d), an estate has one year after the due date to file Form 706 to make an alternate valuation election under section 2032(a). 

(2) Allocation of GST Exemption

Any GST election or allocation made in regard to a 2019 transfer on a Form 709 due between April 1, 2020 and July 15, 2020, is timely if on a Form 709 filed on or before July 15, 2020. There is no relief available for a late allocation of GST exemption. 

(3) Miscellaneous Items: Qualified Disclaimers and Refunds 

Regarding qualified disclaimers, if the period of time to make a qualified disclaimer expires on or after April 1, 2020, and before July 15, 2020, then a taxpayer has until July 15, 2020 to make a qualified disclaimer; however the disclaimer must be timely and valid under state law.

See Christopher Lau & Henry Leibowitz, IRS Issues FAQs Regarding COVID-19 Relief for Estate and Gift Tax Filiings, Proskauer, May 19, 2020.

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

May 20, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Sunday, May 17, 2020

Rich In U.S. Grab Historic Chance to Pass on Wealth Tax-Free

D11ecf8ca05440346f845c1e6d44d38e_this-isometric-graph-paper-is-available-with-various-graph-down-_880-920Due to the coronavirus pandemic, rich Americans are taking advantage of the opportunity to transfer money to their children and grandchildren tax free. The diving interest rates and volatile equity markets have fostered a once-in-a-lifetime opportunity for wealthy Americans that is keeping their wealth advisors busy. 

The key interest rates set by the IRS for estate-planning purposes are at an all time low. The simplest way for wealthy Americans to take advantage of the low rates is to loan cash or other assets to family members. Heirs can borrow millions of dollars, then invest the money and profit from any upside. Also, beneficiaries can lock in these low rates for years and possibly even decades. 

David Stein, a partner on the private client and tax team at Withersworldwide, said many people are taking out longer-term loans and choosing the preference to pay a little but more in interest to guarantee a historically low rate for decades. The falling rates enhance sophisticated estate-planning strategies, especially those that rely on loans to trusts. The advantage to taking advantage of these strategies is that they do not eat into any of the U.S.'s estate and gift tax exemption. 

An example of one of these sophisticated strategies is the grantor retained annuity trust (GRAT), which allows beneficiaries to profit from any future investment gains with no risk of losing money so long as the returns are not higher than the IRS-required interest rate. 

It has never been easier to transfer assets to heirs without using up as much of the tax-exemption. Now is a better time than ever to give!

See Ben Steverman, Rich In U.S. Grab Historic Chance to Pass on Wealth Tax-FreeBloomberg, May 1, 2020. 

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

May 17, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Tuesday, May 5, 2020

Leveraging Gifts in a Down Market

TaxcalcWealthy families generally take advantage of down markets during recessions when the tax advantages can be at their highest. 2020 has the unique benefit of having an extremely high federal lifetime estate tax exemption of $11,580,000 for an individual. The law is to sunset in 2025, unless it is extended, so in 2026 it may as well revert to pre-TDCJ amounts. The IRS has clarified that if you gift now, while the exemption is high, it will not count against you when the exemption decreases later.

You can generally make two types of gifts to take advantage of the transfer of wealth in a down market: making gifts equal to the gift tax exemption amount of $15,000 per recipient, making lifetime gifts that utilize all or a portion of your lifetime estate tax exemption amount. In doing such gifting, the property as well as any appreciation of the asset will no longer be considered in your taxable estate.

A word of caution, however: a person who receives the gift will receive your cost basis in it - carryover basis. So if you had purchased the asset low and it had appreciated before you gifted it, when the recipient sells the asset, the capital gains will be found using your purchase price. Alternatively, if you gift an asset at death that the recipient later sells, the capital gains will be calculated at the price it is valued at the time it was gifted to them. This is why investors usually look for assets that have a high cost basis when making a gift, and a low cost basis when keeping assets in their estate.

See Rebecca MacGregor, Leveraging Gifts in a Down Market, Lexology, May 4, 2020.

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

May 5, 2020 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Friday, April 10, 2020

IRS Announces New July 15 Tax Deadline For Expats, Trusts, Estates And Corporations, Includes June 15 Estimated Payments Fix

IrsThe Internal Revenue Service (IRS) recently issued Notice 2020-23 that confirms that all individuals, trusts, estates, corporations and other non-corporate tax filers, including Americans living abroad, get extra time until July 15 to both file and as well as pay federal income taxes. Because of the current COVID-19 pandemic that is currently wrecking havoc on the daily lives of nearly all Americans, the IRS had first only postponed the due date for tax payment, but the filing date for the tax return remained the same at April 15 as of March 18. Two days later, the filing date was also extended.

On March 27 a separate Notice postponed gift and generation-skipping transfer tax deadlines to July 15. But those that were required to make quarterly payments still had their estimated payment deadlines askew: the first quarter deadline of April 15 was pushed back to July 15, but the second quarter deadline was still June 15. Ed Slott of Rockville Centre, New York said “It was the first time in history the 2nd installment was due before the first installment." Now, both of the first and second quarterly payments are due on July 15, third quarter remain due on September 15, and those for fourth quarter are due on January 15, 2021.

See Ashlea Ebeling, IRS Announces New July 15 Tax Deadline For Expats, Trusts, Estates And Corporations, Includes June 15 Estimated Payments Fix, Forbes, April 9, 2020.

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

April 10, 2020 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (1)

Thursday, March 26, 2020

Article on Wealth Transfer Tax Planning after the Tax Cuts and Jobs Act

TcjaJohn A. Miller and Jeffrey A. Maine recently published an Article entitled, Wealth Transfer Tax Planning after the Tax Cuts and Jobs Act, Wills, Trusts, & Estates Law eJournal (2020). Provided below is the abstract to the Article.

On December 17, 2017, Congress passed the Tax Cuts and Jobs Act (TCJA). Among its many impacts, the TCJA increased the inflation adjusted estate tax basic exclusion amount to $10,000,000 on a temporary basis. This has dramatic implications for many existing and future estate plans, including a major crossover impact on income tax planning. In this article we explain the operation of the federal wealth transfer taxes (the estate tax, the gift tax and the generation skipping transfer tax) in the wake of the TCJA and of the newly issued regulations interpreting the TCJA changes. We also explain the basic tax planning techniques for wealth transmission. The overall design of this article is to bring the reader into the current wealth transfer tax planning picture while providing references to more detailed treatments of particular topics within this broad field.

March 26, 2020 in Articles, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Wednesday, March 25, 2020

Planning Amid Turmoil: 6 Gifting and Tax Strategies for the Current Environment

StockmarketMany investors may seem powerless with the market in such turmoil with heightened volatility and falling interest rates. The truth is that there are still many things one can control in this environment, including opportunities to provide for one's family and others that do not come around very often.

  • Donate to Support Your Communities
    • In 2020, you can deduct up to 60% of your adjusted gross income for gifts made to a public charity, and these deductions can offset normal earnings, such as salaries and bonuses, as well as dividend and interest payments and even capital gains.
  • Help Family Members Ride Out the Storm
    • Under the gift tax annual exclusion, an inidividual can give up to $15,000 in 2020 to each recipient without tax consequences, and for a married couple, the total is $30,000 per recipient.
  • Provide Long-Term Support by Using Your Exemption Amounts
    • Giving away assets that a person expects to appreciate as values recover makes use of their exemption while also shifting that appreciation to the next generation.
  • Use GRATs and CLTs to Make Additional Tax-Free Gifts
    • Grantor Retained Annuity Trusts (GRATs) and Charity Lead Trusts (CLTs) allow a person to pass the appreciation in the value of assets over a hurdle rate set by the IRS to their beneficiaries tax-free. Currently, the IRS hurdle rate is 1.8% and in April, the rate will drop to 1.2%. 
  • Refinance Your Debt and Family Loans
    • With interest rates at rock-bottom levels, it could make sense to refinance existing debt obligations such as a home mortgage and reduce the interest rate on any loans made to family members.
  • Convert Your Traditional IRA to a Roth
    • Since the taxes resulting from a conversion are based on the IRA’s balance at the time of conversion, depressed market prices help reduce the tax liability if an individual decides a ROTH conversion makes sense.

See Bryan Kirk, Planning Amid Turmoil: 6 Gifting and Tax Strategies for the Current Environment, Fiduciary Trust, March 18, 2020.

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

March 25, 2020 in Current Affairs, Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets, Trusts | Permalink | Comments (0)

Tuesday, March 24, 2020

How to Use Exemption Now: Checklist for Spousal Lifetime Access Trusts (SLATs)

MoneyspouseUnder current law, the gift, estate, and generation skipping transfer tax (GST) exemption is $11,580,000, and double that amount for married couples. There are numerous reasons to utilize some or all of that amount now, especially since the exemption is temporary - it is set to lower back to pre-TCJA amounts in 2026. If there is a shift in administration in Washington before that, it could lower sooner.

Setting up trusts can be beneficial for using the tax exemption now and for protecting assets for future generations. But it may be prudent to place the property in a trust that benefit not only your children but also name yourself as a beneficiary so that you not completely cut off from the funds should the need arise for them. If you are married, you can set up a trust that names your spouse as a beneficiary. That way your spouse can access assets transferred as a beneficiary and you do not lose the ability to benefit from the wealth you accumulated. These trusts are sometimes called Spousal Lifetime Access Trusts or “SLATs.”

For those that are not married, the alternative is a domestic asset protection trust, or DAPT. 19 states allow these self-settle trusts, and generally people from those states agree that the trusts serve their intended purpose. If you create this type of trust in a non-DAPT state, be aware of that in many jurisdictions, a self-settled trust is void as to the settlor's creditors.

See Martin Shenkman, How to Use Exemption Now: Checklist for Spousal Lifetime Access Trusts (SLATs), Forbes, March 22, 2020.

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

March 24, 2020 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, New Legislation, Trusts | Permalink | Comments (0)

Sunday, March 8, 2020

CLE on Nonresident Investment in U.S. Real Estate: Tax Traps to Avoid

CLEThe American Law Institute is holding a webcast entitled, Nonresident Investment in U.S. Real Estate: Tax Traps to Avoid, Thursday, March 19, 2020 from 12:00 pm to 1:30 pm. Provided below is a description of the event.

Why You Should Attend

With financial centers around the world in turmoil, inbound investment into the United States continues, often into U.S. real estate. When foreigners invest in U.S. real property, however, there are a number of “tax traps” that can take away the benefit of an investment intended to be a safe haven.

In just 90 minutes, this webcast will cover some critical points in order to understand how to plan effectively for foreign investment into U.S. real estate, and provide guidance on how nonresident aliens can structure their investments to minimize income, gift, and estate tax exposure.

What You Will Learn

Two estate planners with extensive experience in cross-border tax planning and Fellows of ACTEC will discuss:

    • Income, gift, and estate taxation of NRAs as compared to U.S. citizens and residents
    • Challenges of the Foreign Investment in Real Property Tax Act (FIRPTA) and how to handle them
    • Comparison of different tax structures available to nonresident Aliens to hold U.S. real property
    • How 2017 tax reform has impacted real estate holding structures

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

Who Should Attend

Estate planners, tax advisors, and other related professionals will benefit from this CLE jointly offered by ALI CLE and ACTEC.

March 8, 2020 in Articles, Conferences & CLE, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Travel | Permalink | Comments (0)

Friday, March 6, 2020

Heirs of Ultra-Wealthy can Profit Even When Markets Plunge

StockmarketThe coronavirus is causing a panic worldwide and it is being felt domestically by the plunging stock market. Though many people are worried about the downward spiral of stocks, the super wealthy, or 0.1% of Americans, see it as a glimmer of hope in these dark times. 

The rich and their advisors take a longer-term view of market volatility because their beneficiaries are future generations -- some who haven’t even been born yet. “They have more money than they could ever spend,” Ali Hutchinson, a senior wealth planner at Brown Brothers Harriman, said of her ultra-wealthy clients. “Even though this volatility could go on for months, they’re not thinking about it in that short-term way. The smart ones are using it as an opportunity.” When stocks and interest rates are lower, the Internal Revenue Service cannot tax their wealth at the same level as before the dips, making it easier to pass money to the next generation tax-free. “You could almost say it’s a perfect storm for wealth-transfer planning,” said David Stein, a partner on the private client and tax team at Withersworldwide.

A Grantor Retained Annuity Trust (GRAT) is also an option that shows much more promise during times of damaged stocks. A wealthy family will put a stock or other asset in a GRAT, a transaction that is technically a loan. If the stock rises in value, those proceeds go to beneficiaries tax-free. If the stock drops, there’s no harm done and the shares just go back to the donor. The IRS requires that trusts pay interest back to the lender, the taxpayer that set up the GRAT. The rates, which are set by a formula and published each month, are a hurdle that GRAT investments must clear in order for returns to flow to beneficiaries. Stein expects the IRS’s April rate could drop to about 1.2% or even lower.

See Ben Steverman, Heirs of Ultra-Wealthy can Profit Even When Markets Plunge, Financial Advisor, March 6, 2020.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) and Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

March 6, 2020 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Trusts | Permalink | Comments (0)