Wills, Trusts & Estates Prof Blog

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

Friday, April 2, 2021

U.S. Senate Introduces Legislation for Higher Taxes on Wealth

Wealth taxOn March 25, 2021, Senator Bernie Sanders introduced the For the 99.5 Percent Act (the 99.5 percent Act). The Act looks to modify the estate, gift, and generation-skipping transfer tax. 

If accepted, the Act would "reduce the estate tax exemption, set the gift tax exemption at an amount lower than the estate tax exemption, and increase tax rates on large gifts and estates, effectively returning the gift and estate tax rules to the law in effect in 2009, but with higher rates." The changes would apply to transfers occurring after December 31, 2021. 

Other changes under the Act include: 

  • The estate tax exemption amount would be reduced to $3.5 Million per individual ($7 Million for married couples), with no adjustment for changes in the cost of living. Under current law, the estate tax exemption amount is $11.7 Million per individual ($23.4 Million for married couples), adjusted annually for changes in the cost of living. However, the current exemption amount is scheduled to be reduced by 50% after December 31, 2025. 
  • The amount of the exemption available to shelter lifetime transfers from gift tax would be reduced to $1 Million per individual ($2 Million for married couples), with no adjustment for changes in the cost of living. The portion of the $1 Million exemption used during an individual’s lifetime to shelter lifetime gifts from gift tax would reduce the amount of the $3.5 Million exemption available to shelter transfers at the individual’s death from estate tax. Under current law, the gift tax exemption is the same as the estate tax exemption (and will also be reduced by 50% after December 31, 2025), and any amount not used during an individual’s lifetime is available to shelter transfers at death from estate tax. 
  • The estate tax rate would increase using a progressive tax rate based upon the value of the decedent’s estate:
    • There would be no tax on the first $3.5 Million of the estate.
    • There would be a 45% tax on the estate in excess of $3.5 Million up to $10 Million.
    • There would be a 50% tax on the estate in excess of $10 Million up to $50 Million.
    • There would be a 55% tax on the estate in excess of $50 Million up to $1 Billion.
    • There would be a 65% tax on the estate in excess of $1 Billion.

See U.S. Senate Introduces Legislation for Higher Taxes on Wealth, Greenberg Glusker, March 26, 2021. 

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

April 2, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Monday, March 1, 2021

The 2020 Election and the Effect on Current Gift, Estate and Generation-Skipping Transfer Taxes

TaxDue to the election results and President Joe Biden taking Trump's position in the Oval Office, conversation continues to grow surrounding the area of taxes and estate planning. 

As many are aware of by now, Biden has brought forth a few proposals that will greatly impact estate planning for Americans. 

Gift tax, estate tax and generation-skipping transfer are among federal taxes that would be affected if Biden's proposals took effect.

"The gift tax (which applies to lifetime transfers) and estate tax (which applies to transfers at death) are “unified,” meaning that a single rate schedule applies to both taxes and there is a single “exemption” amount that each individual may transfer during life or at death without paying gift or estate taxes. The GST tax is an additional tax imposed on certain transfers made to persons more than one generation below the donor. The GST tax applies to transfers during life and to transfers at and after death." 

Under current law, gift, estate, and GST exemptions are currently at $11.7 million. These rates are expected to "sunset" on January 1, 2026. However, if Biden's proposals are adopted and implemented, the rates could return back to $5 million before 2026. 

Although it is not clear what changes will be adopted or made in the tax arena, it is important to stay updated and informed of what is going on. 

Some things to consider: 

  • Retroactivity and risk 
  • Disclaimer
  • Marital deduction
  • Loans and forgiveness 

See Daniel R. Donovan & Beth Abraham, The 2020 Election and the Effect on Current Gift, Estate and Generation-Skipping Transfer Taxes, Faegre Drinker, February 22, 2021.  

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

March 1, 2021 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax | Permalink | Comments (0)

Wednesday, December 2, 2020

2020-2021 TREASURY-IRS PRIORITY GUIDANCE PLAN

Estate planningOn November 17, 2020, the Treasury Department and the IRS released their Priority Guidance Plan for the 12 months from July 2020 through June 2021. 

The American College of Trust and Estate Counsel (ACTEC) posted an overview of what the Treasury and the IRS will focus on for the next seven months. 

Part 1 of the plan is titled "Implementation of Tax Cuts and Jobs Act (TCJA)" and contains 38 items. Of the 38 items, there are two in particular that will interest estate planners. 

Item 4 of Part 1 will have some focus on the deduction of estate and trust expenses. The item includes Notice 2018-61 which was originally published on July 30, 2018, which stated, "“the Treasury Department and the IRS intend to issue regulations clarifying that estates and non-grantor trusts may continue to deduct expenses described in section 67(e)(1)” despite the eight-year “suspension” of section 67(a) in the 2017 Tax Act by new section 67(g)." 

Item 33 of Part 1 provides "significant reinforcement for the proposition that the death of the grantor does not by itself cause the recognition of gain with respect to appreciated assets held in a grantor trust."

The Priority Guidance Plan also includes information on burden reduction, relief regarding GST exemption allocations and elections, and more general guidance. The ACTEC website also provides information on omissions from the Priority Guidance Plan. 

The aforementioned information and more is available in the source cited below. 

See 2020-2021 TREASURY-IRS PRIORITY GUIDANCE PLAN, The American College of Trust and Estate Counsel, November 30, 2020. 

December 2, 2020 in Current Events, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Tuesday, December 1, 2020

Individual Tax Planning Following the November 2020 Elections

TaxThe presidential election has passed and individual tax planning remains a touchy subject as there is a lot of uncertainty surrounding the topic. As of now, it is unclear what the remainder of this year holds, much less what the beginning of 2021 has in store. 

As of now, it appears that the Democrats will control the House of Representatives, it is unclear which party will control the U.S. Senate. Unfortunately, the uncertainty regarding the Senate will remain until the run-off for the two U.S. Senate seats in Georgia occurs in January 5, 2021. 

There has been a lot of talk about potential changes to tax policy under a Joe Biden presidency and if the Democrats end up in control of the House and the Senate, the changes are more than likely to occur. 

With this in mind, individuals are taking advantage of the current tax exemptions just in case they are gone in 2021. 

The potential changes would have an effect on taxes on Income, Capital Gains, and Estate taxes. 

If these changes worry you or you will simply just miss the current tax exemptions you have available to you, now is the time to get your affairs in order and take the necessary steps to utilize the exemptions. 

For strategies and tips to use to take advantage of tax exemptions, see the article cited below. 

See Mark J. Andres, Individual Tax Planning Following the November 2020 Elections, National Law Review, November 25, 2020. 

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

December 1, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, November 30, 2020

2021 Inflation Adjustments of Interest to International Tax Practitioners

Estate planningThe IRS recently released its annual Revenue Procedure containing inflation-adjustments for 2021.

 Of interest to international tax and estate planning practitioners are the following:

  • Estate and Gift Tax Basic Exclusion Amount: $11,700,000
  • Gift Tax Annual Exclusion Amount: $15,000
  • Increased Annual Exclusion for Gifts to Non-U.S. Citizen Spouses: $159,000
  • Tax Liability Threshold for Covered Expatriate Status: $172,000
  • Gain Exclusion Amount for Covered Expatriates: $744,000
  • Foreign Earned Income Exclusion Amount: $108,700

 

"Practitioners should note that the estate and gift tax basic exclusion amount is only available to U.S. citizens and U.S. domiciliaries. Foreign individuals do not receive any exclusion amount for U.S. gift tax purposes (other than the annual exclusion amounts) and only receive a $60,000 exemption for U.S. estate tax purposes."

November 30, 2020 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

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)