Wills, Trusts & Estates Prof Blog

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

Tuesday, November 24, 2020

Article on Family Fiduciaries in the Protective Jurisdiction

Ben Chen recently published an article entitled, Family Fiduciaries in the Protective Jurisdiction, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

Baby boomers in Australia are entering retirement with a higher life expectancy and more wealth than any generation before them. Mental and physical decline can make it difficult or impractical for many older people to safeguard their own financial interests. In particular, guardians and attorneys who manage property for the elderly have the opportunity to misuse their power to enrich themselves. Responding to recommendations from law reform commissions, Australian legislatures tend to impose the strictest form of fiduciary regulation on guardians and attorneys.

Bucking the trend, this article argues in favour of a flexible model of fiduciary regulation. This model originates from historical Chancery jurisprudence and continues to enjoy support in New South Wales. The prevailing, strict model not only tends to be overprotective, it also ignores the reality that litigation about the properties of the elderly is often driven by inheritance expectations. The flexible model can alleviate the potential overprotectiveness of fiduciary law and accommodate harmless conflicts in close families.

November 24, 2020 in Articles, Estate Planning - Generally, Generation-Skipping Transfer Tax, Trusts | Permalink | Comments (0)

Sunday, November 22, 2020

Is Now the Right Time to Forgive Intrafamily Loans?

Estate planningIf you made intrafamily loans to family members in the past, or even more recently due to the COVID-19 pandemic, you should consider forgiving those loans. Here's why, as of now, the gift and estate tax exemption rates are at an all-time high. Also, the interest rates are at a record breaking low. 

It is possible that intrafamily loans can be used as an estate planning tool due to the ability to transfer wealth to your loved ones tax free so long as the loan proceeds reach a certain level of returns. 

"Generally, to ensure the desired tax outcome, an intrafamily loan must have an interest rate that equals or exceeds the applicable federal rate (AFR) at the time the loan is made. The principal and interest are included in the lender’s estate, so the key to transferring wealth tax-free is for the borrower to invest the loan proceeds in a business, real estate or another opportunity whose returns outperform the AFR."

Any excess from these investment returns over the interest expense will work as a tax-free gift to the borrower. With low interest rates, it is much easier to outperform the APR. 

If have some leftover exemption, forgiving an intrafamily loan will allow you to transfer the entire loan principal plus any accrued interest tax-free. This will allow you to take advantage of the $11.58 million exemption amount before it is gone. 

There are also income tax considerations. Typically, forgiving intrafamily loans will be considered a gift, which carries with it no income tax consequences. 

In deciding whether or not you should forgive an intrafamily loan, you should speak with your financial and/or estate planning advisor.

See Joseph R. Marion, III & David T. Riedel, Is Now the Right Time to Forgive Intrafamily Loans?, Adler, Pollock, & Sheehan P.C.: Insight on Estate Planning, October 27, 2020.

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

November 22, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Thursday, November 19, 2020

Year-end planning just got a whole lot more complicated

Estate planningAs Election Day approached, talk surrounding estate planning grew. Presidential candidate Joe Biden announced his tax plan proposal, which many thought may come to fruition if the Democratic Party won the Presidency and took over a majority of the Senate. The proposed tax plan would significantly reduce estate and gift tax exemptions. 

Although the election has come and gone, there is not yet much clarity surrounding the future of estate planning. It appears more likely than not that Joe Biden will be the next President, there is still a lot of discussion. Further, the determination of which party will control the Senate will not be made until the two runoff elections in Georgia are held in January.

Therefore, we will not know who will control the Presidency, House, and Senate until after 2020 has ended. Due to the uncertainty, estate planning has been and will continue to be difficult. 

It may be in your client's best interest to take advantage of the current tax exemptions while they are available. Whether this is what is best for your client will depend on their current financial situation. It may be the case that the potential reduced exemptions will not affect them.

However, "The harder situation is for those individuals who might not have a federal tax due at death if the exemptions stay where they are, but would owe tax if they were to be cut by 50% or more. Those of us who lived through 2012 have already seen this movie. In these cases, there may be ways to structure the gift to give a family more time to make the decision."

It is important to discuss the implications of the new exemption rates and the potential impact they could have on your client, whether or not the new tax plan is a sure thing.

See Scott Bieber, Year-end planning just got a whole lot more complicated, Thompson Coburn LLP, November 13, 2020. 

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

November 19, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Monday, October 5, 2020

Year-End Planning Amid a Year of Uncertainty

EstateDue to the coronavirus, this year will stand out for a very long time due to the "uncertainty and unending personal financial planning." As we are approaching the end of the year, there are some things that you should consider as there may be potential tax law changes. 

As of now, the estate, gift, and generation-skipping transfer tax exemption is at an all-time high of $11.58M per person. As this exemption is expected to "sunset" in late December of 2025 (and possibly earlier), now is a good time to consider how to take advantage of the exemption. The IRS has stated that if you take advantage of this exemption now, it will not be "clawed back" even if the exemption is lower in the year that you die. 

Another thing to pay attention to is the individual income tax, capital gains, qualified business income deduction,  and maximize tax-advantaged accounts. These are great things to look at in regard to income tax planning. 

As the end of the year approaches, along with a presidential election, it is not only recommended to consider updating your estate plan, but may be necessary as the opportunities that exist now may not be available next year. 

See Alvina H. Lo, Year-End Planning Amid a Year of Uncertainty, Bloomberg Tax, September 25, 2020. 

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

October 5, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Sunday, October 4, 2020

Biden’s Tax Proposals and Estate Planning

Joe Biden has given little information about his plans in regard to estate planning and tax treatment, but he has provided limited information on the topic. 

It appears that Joe Biden does support "raising estate taxes and changing the taxation of capital assets upon death."

As of now, the tax exemption is $11.58M per person and $23.16M per married couple. These rates are expected to stay until the end of 2025. However, if Joe Biden wins the presidential election and if the Democrats win control of both the Senate and the House, the exemption limit will likely be reduced sooner.

Biden has also hinted that he wishes to "change the treatment of capital gains at death." Biden has signaled that he wants to reintroduce an Obama administration proposal that would impose a "mark-to-market tax appreciated capital assets upon the death of the owner." 

See Amy E. Heller, Andrew D. O'Gwynn, Biden’s Tax Proposals and Estate Planning, Skadden, September 30, 2020. 

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

October 4, 2020 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Tuesday, September 29, 2020

Making Lemonade out of Lemons: Estate Planning Opportunities in a Low Interest Rate Environment

LemonadeWe have been thrust into an environment that is unpredictable and what many are referring to as "uncertain times." Due to the stress that has come with these "uncertain times" many people are not thinking about and are quite possibly even avoiding gifting programs. However, the current depressed financial markets and historically low interest rates have presented "a unique opportunity for families to pass a significant amount of wealth to younger generations with minimal transfer tax exposure."

There are multiple estate planning techniques that provide a great potential for upside "when implemented during a state of declining financial markets combined with the historically low interest rates. A few of these techniques are:

  • Grantor Retained Annuity Trusts
  • Sales to a Grantor Trust
  • Intrafamily Loans
  • Charitable Lead Trusts
  • Generation-Skipping Transfer Tax Planning

Before you begin planning your gifting strategy, it is important to remember that each individual has a combined federal estate and gift tax exemption of $11.58 million. Which means, each married couple has $23.16 million. This exemption will remain in place in 2025, barring any unforeseen reduction due to the 2020 elections or other factors. 

Now is a perfect time to take advantage of the "rare opportunity to make some lemonade out of lemons."

See Anna Katherine Moody & Emily A. Plocki, Making Lemonade out of Lemons: Estate Planning Opportunities in a Low Interest Rate Environment, American Bar Association: Probate & Property, September/October 2020. 

 

September 29, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)

Wednesday, August 19, 2020

International Estate Planning

GlobalInternational travel has dropped significantly in the wake of the COVID-19 pandemic. However, people around the world are still needing to travel for employment. Also, those who own or inherit assets outside of their regular homes are traveling as well. For the latter, International Estate Planning is a must. 

"International Estate Planning are the strategies and tactics used to achieve U.S. and Foreign clients objectives."

These strategic objectives include:

  • Maintaining control and ownership of wealth and property during the client's lifetime and after their death.
  • Providing financial security not only for the client but also for their spouse, children and other beneficiaries. 

International Estate Planning is also a very efficient way to enhance personal, business and family wealth management. "This most often means making your actions tax-efficient especially in regards to U.S. Income, Excise, Estate, Gift, and Generation Skipping Transfer Taxes, as well as foreign income, estate, gift and excise taxes as well as the issues raised by the conflicts of laws, the transparency of financial transactions and compliance with restrictions on the use of tax and asset protection havens."

One issue with International Estate Planning is that many clients are concerned about opening their financial accounts and tax information "not just in the context of the United States, but of any country with which the client may have a tax connection." This raises a confidentiality issues that is sure to make certain clients uncomfortable. 

Clients should be informed about the risks of International Estate Planning and should also know (1) if they are a part of the two groups that it affects and (2) when International Estate Planning is triggered. 

See, Matthew Erskine, International Estate Planning, Forbes, August 10, 2020.

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

August 19, 2020 in Current Events, Death Event Planning, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Travel | Permalink | Comments (0)

Friday, July 3, 2020

Is Now the Time to Use Your Lifetime Exemption?

_2018_11_money-boxMany clients are asking about how to plan in light of possible changes to the federal estate tax law. In response to current events and the impact on state and federal budgets, it is very possible that the federal estate tax exemption could be reduced from the current amount of &11.58 million per person. 

Given the uncertainty surrounding estate taxes and gains, planning for income taxes will be a concern and states may be adding or increasing state income taxes as a result of budgetary shortfalls. 

One strategy that emerges from these concerns is the importance of lifetime gifts to children or other family members, in order to use some or all of the federal estate tax exemption during lifetime. 

One advantage to making a large gift now is that the appreciation will not be taxed in your federal estate and will be shifted to the recipients. Also, if you live in Oregon or Washington, your estate will not pay those states' estate tax on those gifts. If you are able to make a gift larger than what the federal exemption may be in the future, a larger gift may provide these advantages.

If you are worried about the federal exemption being lowered, the Treasury Department and the IRS have confirmed that there will be no "clawback" for gifts made under the increased estate and gift tax exclusion put in place by the Tax Cuts and Jobs Act of 2017.

One thing you should think about before making a large gift is the amount of assets to retain in order to maintain your lifestyle, which may affect which types of assets you give away. Another thing to consider is asset basis and built in capital gain as the recipient of your gift will take on your basis and may pay capital gains tax if the assets are subsequently sold. Therefore, the best assets to give are cash, assets in high basis, or assets that your recipient is very unlikely to sell. 

See Susan B. Bock, Wendy S. Goffe, & Emily V. Karr, Is Now the Time to Use Your Lifetime Exemption?, Stoel Rives LLP, June 30, 2020.

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

July 3, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Thursday, June 25, 2020

Opportunities Abound for Wealth Transfer

UnknownDue to COVID-19, it has been a rough year for investments. Further, the first-quarter pullback in the stock market created continued volatility which has added insult to portfolios. 

However, the gloomy climate has opened up some rare opportunities in another area of wealth planning: wealth transfer. The low interest rates and reduced asset prices combined with the ultrahigh estate tax exemption that was enacted under the Tax Cuts and Jobs Act in 2018 create a perfect storm for maximizing the amount you can pass to beneficiaries while avoiding or minimizing a tax hit.

“If you’ve been wanting to transfer a bunch of securities or interest in your company or real estate, well, now’s the time to do it,” says Bryan Kirk, director of financial and estate planning at Fiduciary Trust International.

For those worried about estate tax, you can push more assets out of your estate under the exemption when values are low, Kirk says, adding that large assets are typically transferred to a generic irrevocable trust to ensure they’re managed properly and protected from creditors or spendthrift heirs.

Further, even families who aren’t concerned with the estate tax can benefit from low-value asset transfers. One way to do this is a grantor retained annuity trust (GRAT), which returns the value of the assets to you when the trust expires but leaves appreciation to your beneficiaries.You transfer assets to a GRAT and receive an annuity payment over the trust’s term that’s equal to the amount you put in, plus appreciation up to an IRS interest rate. At the end of the trust’s term, any appreciation over the IRS rate—called the 7520 rate—goes to heirs.

See Karen Hube, Opportunities Abound for Wealth Transfer, Barron's, June 18, 2020. 

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

June 25, 2020 in Current Events, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Friday, June 5, 2020

Is it Time to "Use it or Lose it?"

Tax-exemption-image-e1516143026899Due to COVID-19, we will likely see significant statutory changes to the federal estate, gift, and generation-skipping transfer tax exemptions. 

"The United States Congress and the Federal Reserve have been taking unprecedented steps to shore up our economy – massive stimulus packages have already made their way into law, and more appear to be coming down the pike."

Market observes are backing these strategies as a way to help businesses and families make it through the coronavirus pandemic. However, as the continued pandemic affects the market-volatility, legal and tax observers have a recurring thing: "At some point, taxpayers will have to replenish the government's piggy bank."

The Tax Cuts and Jobs Act of 2017 (the "TCJA") increased the unified federal estate, gift, and generation-skipping transfer tax exemption to $10 million per person with an annual inflationary adjustment. In 2020, an individual can transfer – by lifetime gift, transfer at death, or a combination of the two – a total of $11.58 million to non-spouses without incurring these transfer taxes. However, the heightened exemption amounts are set to "sunset" on January 1, 2026, in which the $5 million baseline exemption will be back in effect. 

Given the stimulus spending and the current political climate, many are wondering how long the exemption high-water-mark can last. Thus, it may be more imperative now than ever before for individuals facing potential estate tax liabilities to find a way to use this massive exemption amount while it is still available.

See Jennifer Boyer, Is it Time to "Use it or Lose it?", Ward and Smith, P.A., June 3, 2020.

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

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