Wills, Trusts & Estates Prof Blog

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

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)

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)

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)

Thursday, October 3, 2019

CLE on 45th Annual Trust and Estate Conference at USC Gould School of Law

CLEThe University of Southern California Gould School of Law is holding a conference entitled, 45th Annual Trust and Estate Conference, on Friday, November 22, 2019 at The Westin Bonaventure Hotel in Los Angeles, California. Provided below is a description of the event.

why attend?

High-Quality Education

For over 40 years, USC Gould’s Trust and Estate Conference has provided high-quality continuing education customized for trust, estate planning, probate and elder law professionals.

Practical and Realistic Solutions

The Conference has a proven track record of teaching practical and realistic solutions to everyday and unexpected problems in estate planning, trust administration, probate, trust and estate litigation, elder law and client relationships. Speakers often share “howto” techniques and forms used in their practices.

Unrivaled Networking

Over 500 of your peers registered for the Conference last year for an unrivaled networking and learning opportunity from both the speakers and your professional colleagues.

who should attend?

The Conference is specially tailored for trust, estate planning, probate and elder law professionals including attorneys, paralegals, trust officers, accountants, financial institution executives, private professional fiduciaries, wealth management professionals, fiduciary officers, underwriters and insurance advisors.

what’s included?

Registration includes all sessions, continental breakfast, networking breaks, luncheon presentation, continuing education credit, and print and downloadable copies of the practical Conference Syllabus including the popular Resource Guide, a Trust and Estate Professional Directory covering Los Angeles, Orange and San Diego counties.

Free WiFi and an Event App will also be available for attendees at the Conference!

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

October 3, 2019 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Cases, New Legislation, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Wednesday, September 25, 2019

Inflation Adjusted 2020 Figures Announced

IrsThe Internal Revenue Service has announced the inflation adjustments for the estate and gift tax exclusion, the generation-skipping transfer tax exemption, the gift tax exclusion and other estate planning rates for 2020.

  • The federal estate and gift tax exclusion amounts will increase by $180,000, from $11.4 million to $11.58 million.
  • The generation-skipping transfer (GST) tax exemption will also going to be $11,580,000.
  • The annual gift tax exclusion will remain the same at $15,000 per donor per donee per calendar year.
  • Trust and estate income tax rate brackets have also been released.
    • If income is less than $2,600, the tax is 10% of taxable income.
    • If income is over $2,600 but not over $9,450, the tax is $260 plus 24% of what is over $2,600.
    • If income is over $9,450 but not over $12,950, the tax is $1904 plus 35% of what is over $9,450.
    • The highest bracket comes in at amounts over $12,950, in which the tax is $3,129 plus 37% of the excess over $12,950.

See James V. Roberts, Inflation Adjusted 2020 Figures Announced, JamesVRoberts.com, September 25, 2019.

September 25, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (2)

Wednesday, September 18, 2019

Dynasty Trusts: Best Way to Protect Family Wealth

RussiandollsAn irrevocable trust ensures a smooth, usually drama-free transfer of assets than a will, while also offering significant tax advantages, asset protection, privacy, and control. Dynasty trusts, which can last hundreds of years when they are allowed to do so, can provide the greatest benefit of all trusts.

Many states have laws against perpetuities, so it is important to take into account the location of the trust. Five states allow perpetual trusts, while six states allow trusts to last up to 360 years. If you are in a jurisdiction that is not one of these 11 states, a financial advisor well coursed in dynasty trusts can walk you through how to set one up in a state that does.

The estate tax is only assessed to dynasty trusts once, even though it can endure for several generations and increase in value exponentially. As a nice little bonus, trust assets are not subject to generation-skipping transfer tax (GSTT), which are notorious for complication bequests to grandchildren. Furthermore, a dynasty trust can expand a settlor's control over the trust assets for many generations, ensuring the family's legacy.

As with many trusts, a dynasty trust can also protect assets from creditors, including ex-spouses of family members. Because the assets are owned by the trust - not the beneficiaries - those assets cannot be included in jointly held estate. There is also increased privacy with trusts, keeping distribution of property out of the public eye, whether it be during a person's life or at the time of death.

See Harvey Bezozi, Dynasty Trusts: Best Way to Protect Family Wealth, News Max, September 16, 2019.

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

September 18, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Tuesday, September 17, 2019

CLE on Probate Process, Procedures and Documents: All the Forms and Checklists in One Place

CLEThe National Business Institute is holding a webcast entitled, Probate Process, Procedures and Documents: All the Forms and Checklists in One, on Tuesday, October 15, 2019 at 9:00 AM - 4:00 PM Central. Provided below is a description of the event.

Navigate Probate with Confidence

When the client is no longer there to make his or her voice heard, the task of interpreting his/her wishes to accurately settle the estate falls on your shoulders. Do you have all the tools you will need? This program will provide you with a comprehensive overview of the probate process, equipping you with the checklists, forms and documents you will need to guide your clients through each time-sensitive procedure. Learn what to do and when to do it, from the initial petition to the final accounting. Register today!

    • Don't miss a step - learn how to map out the entire probate process by utilizing a master checklist.
    • Examine the essential content of the initial petition and understand the procedure for filing it.
    • Receive practical tips on valuing and recording assets to be included in the estate inventory.
    • Handle creditor notices and responses.
    • Understand key provisions of trusts and their impact on the probate process.
    • Learn what must be included in the final accounting and review sample tax returns.

Who Should Attend

This program is designed for attorneys. It will also benefit accountants and CPAs, trust officers, and paralegals.

Course Content

    • Probate Process and Executor Duties: The Master Checklist with Deadlines
    • Wills: Key Provisions, Validity, Interpreting Unique Instructions
    • Initial Petition and Letters of Authority: Content and Procedure
    • Estate Inventory: Valuing and Recording Assets
    • Creditor Notices and Responses
    • Trusts: Key Provisions, Trustee Duties, and the Trust's Impact on Probate
    • Final Accounting: What Must and Should Be Included
    • TAX Returns and Schedules for the Estate and the Decedent: Forms, Deadlines, Exentions (With Sample Returns)
    • Estate Closing and Distributions: Notices of Proposed Action, Petition to Discharge the Fiduciary, and Other Key Documents
    • Ethical Practice Considerations and Concerns in Probate

September 17, 2019 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Non-Probate Assets, Professional Responsibility, Trusts, Wills | Permalink | Comments (0)