Wills, Trusts & Estates Prof Blog

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

Thursday, July 29, 2021

Impact of President Biden's Tax Plan on Estate Planning

Estate planningThere has been speculation on what President Biden's tax proposal will look like and what effects it will have on estate planning. There is also a question about the likelihood that President Biden's tax plan will be enacted into law. 

The Biden Administration announced the American Families Plan in April 2021, which proposed "significant tax law changes to increase taxes on both corporations and high-net worth individuals and to provide more resources to enhance IRS tax enforcement efforts. 

In May 2021, the United States Department of Treasury issued a report entitled, "General Explanation of the Administration's Fiscal 2022 Revenue Proposals (generally referred to as the Green Book) which included more details on the tax law changes previously proposed in the American Families Plan." The memo provided an overview of the proposed changes of the American Families Plan and the impact those changes may have on estate planning. 

Under the current proposal, "there will be a realization of capital gains to the extent such gains are in excess of a $1 million exclusion per person, upon the transfer of appreciated assets at death or by a gift. . .the proposal would provide various exclusions and exceptions for certain family-owned and operated businesses. 

One thing that was not addressed in the Green Book are changes to the federal estate, gift and generation skipping transfer (GST) tax system, although Biden did propose these changes during his campaign. 

There is a lot of uncertainty surrounding new tax laws, so high-net-worth individuals with estate tax concerns should consider taking advantage heightened exemptions by implementing wealth transfer strategies like the following: 

  • Intentionally Defective Grantor Trust (IDGT)
  • Spousal Lifetime Access Trust (SLAT)
  • Grantor Retained Annuity Trust (GRAT)
  • Charitable Lead Annuity Trust (CLAT)
  • Annual Gifts 
  • And more. 

See Jeffrey M. Glogower, Stephen J. Bahr, & Adam W. Randle, Impact of President Biden's Tax Plan on Estate Planning, The National Law Review, July 26, 2021. 

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

July 29, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Sunday, June 27, 2021

Minnesota farmer concerned tax proposals could fundamentally change structure of family farms

Estate planningKirby Hettver, a fifth-generation farmer from DeGraff, Minnesota, expressed concerns about proposed changes to the estate tax. Hettver believes that the proposed changes could "fundamentally change the way family farms are structured. 

Hettver stated, “Obviously we don’t want to make any decisions without knowing a little more about what exactly they are going to end up with.”

President Biden's proposed changes, which include elimination of the stepped-up basis, will affect a lot of families, farm families included. The elimination of stepped-up basis would cause "inherited assets, like land, to be taxed upon the previous owner's death, and lower the estate tax threshold from $11.7 million to $500,000.

Hettver further stated, “In order for us to maintain (the farm) and pass it onto the sixth generation, based on the new policies if we need to make changes we’ll have to figure out what rules we’re playing by and play by them.”

See Mark Dorenkamp, Minnesota farmer concerned tax proposals could fundamentally change structure of family farms, Brownfield Ag News, June 25, 2021. 

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

June 27, 2021 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (1)

Friday, May 28, 2021

IRS Practice Units

IRS"As part of LB&I's knowledge management efforts, Practice Units are developed through internal collaboration and serve as both job aids and training materials on tax issues. For example, Practice Units provide IRS staff with explanations of general tax concepts as well as information about a specific type of transaction. Practice Units will continue to evolve as the compliance environment changes and new insights and experiences are contributed."

Visit the link below to view the practice units: 

https://www.irs.gov/businesses/corporations/practice-units

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention. 

 

May 28, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, May 24, 2021

Democrats Mull Weakening Biden Tax On Capital Gains For Estates

Wealth taxThe Biden administration's proposal to "dramatically expand the inheritance tax bill for wealthy Americans" is beginning to frequent obstacles as Democrats on Capitol Hill are becoming nervousness about the "scope and size of elements of the White House's ambitious plans." 

One of the key elements of the Biden Administration's proposal is ending the step-up in basis, which allows heirs to use the market value of assets at the time of inheritance (as opposed to the purchase price) as the cost basis for capital gains. 

According to those in the loop, "[i]nstead of hitting heirs with a hefty tax payment at the time of the death of their benefactor, staff for House Ways and Means Chair Richard Neal have floated allowing the beneficiaries to defer the bill as long as they hang on to the asset. . ." 

The "Green Book," which is a report from the Treasury Department, is expected to provide some detail on the Biden Administration's tax plans.

See Laura Davison & Nancy Cook, Democrats Mull Weakening Biden Tax On Capital Gains For Estates

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

May 24, 2021 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Wednesday, April 14, 2021

Client Alert: Are Changes Afoot for Estate and Gift Taxes?

Wealth taxUnder the current administration and "composition of Congress," changes to estate and gift taxes are likely. Senator Bernie Sanders recently proposed tax reform legislation that would "make major changes to the current estate and gift tax rules." 

If the legislation were adopted, there would be a reduction to the estate tax lifetime exemption. Under the proposed legislation, the current exemption ($11.7 million per taxpayer) would drop to $3.5 million, which would not be adjusted for inflation. Further, the gift tax lifetime exemption would be reduced to $1 million. 

Also, "gifts to irrevocable trusts and certain family entities, and gifts of assets subject to prohibitions on sale and those that cannot immediately be liquidated will be subject to a limit of $30,000 per donor annually." 

The rate of the estate tax which would change to a progressive rate and increase from 40 percent to 45 percent for taxable estates between $3.5 million and $10 million, "50 percent for estates between $10 million and $50 million, 55 percent for estates between $50 million and $1 billion, and 65 percent for estates over $1 billion." 

If adopted, the new legislation would affect the usefulness of grantor trusts, GRATs, and family entity discounts. 

The proposed legislation would also greatly affect trusts that are considered to be owned by a grantor for income tax purposes, which would be subject to federal estate tax upon the death of the grantor. Further, distributions from grantor trusts would be considered gifts from the grantor. 

Assuming that the proposed legislation, which would take effect in January 2022, would not be retroactive, taxpayers should consider taking advantage of the current laws so that they do not miss out on them if the proposal passes. 

See Carol A. Sobczak, Client Alert: Are Changes Afoot for Estate and Gift Taxes?, Shumaker, April 9, 2021. 

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

April 14, 2021 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

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)

Friday, February 12, 2021

Article: An Estate Planner's Guide to Specific Testamentary Gifts

Estate planningGerry W. Beyer recently published an article entitled, An Estate Planner's Guide to Specific Testamentary Gifts, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. 

Clients are excited to make specific gifts in their wills. For some, the goal is to pass treasured family heirlooms and other property with significant emotional attachment to the appropriate family members. Others seek instead to transfer assets of value to family members, friends, and charities so the recipients may keep or, more likely, sell the property to gain funds they desire for their needs.

This article discusses the variety of issues that arise with specific gifts with the aim of making it easier for an estate planner to structure them to effectuate their clients’ intentions.

February 12, 2021 in Articles, Estate Administration, Estate Planning - Generally, Gift Tax, Wills | Permalink | Comments (0)

Wednesday, January 27, 2021

Trusts and Estates 2021 Tax Update

TaxWith the combination of the new president, Joe Biden, and the rebalancing of the House and Senate, it may be necessary to prepare for tax changes. During his campaign las year, Joe Biden announced a tax plan that "would decrease he federal estate tax exemption from the current amount of $11.7 million to $3.5 million. In addition, Biden’s tax plan, if implemented, would raise the individual income, capital gains, and payroll taxes for individuals with high levels of income. The changes to the capital gains tax would appear to be the most significant." 

The Tax Cuts and Jobs Act (TCJA) doubled the estate, gift and generation skipping transfer tax exemption to $10 million ($11.7 million adjusted for inflation) set to run from 2018 until 2025. However, with President Biden's tax plan, the exemption amount would be reduced to $5 million before the set date of the end of 2025. It is possible that the rate goes as low as $3.5 million, the amount the rate was in 2009. 

It may be necessary to take a look at your estate plan as these changes could have a big effect. You may want figure out what gifts are linked to the amount of exemption and use the exemption before it is reduced.

If you believe that these changes will or could affect you, it is imperative that you visit with an estate planner to review your financial situation and the implications of the potential tax changes.

See Trusts and Estates 2021 Tax Update, Downs, Rachlin, Martin PLLC, January 22, 2021. 

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

January 27, 2021 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Friday, January 8, 2021

Article on Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments

Bridget J. Crawford and Wendy C. Gerzog recently published an article entitled, Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. Tax

A tax system should be fair. According to conventional wisdom, this fairness mandate means that similarly situated taxpayers should pay similar taxes. Notably absent from most discussions about tax fairness or equity is any consideration of race. This makes sense, if one focuses on the tax laws’ facial neutrality, as well as the Internal Revenue Service’s failure to collect official data about the race of taxpayers. But if one is interested in equity among taxpayers, we must also examine to what extent different groups of taxpayers benefit from a Code section that reduces their tax liability. In the context of distributional equity, race and other identity characteristics must inform any analysis. This Article intervenes in this discussion with three principal claims: one descriptive, one normative, and one utilitarian.


First, the Article uses data from the higher education sector to demonstrate that primarily wealthy, white taxpayers capture the most generous educational tax benefits. Black taxpayers appear to benefit the least from these tax provisions. Black college graduates have greater education-related debt (both in incidence and quantum) than any other group of their peers. Furthermore Black college graduates have lower average wages and higher rates of unemployment compared to their Asian, Hispanic/Latinx counterparts. Black families are the least likely to be able to contribute to a 529 college tuition savings program or to make tax-free, direct tuition payments. While Black college graduates and families can take advantage of some tax benefits for higher education, the greatest tax expenditures are for those that benefit whites.
The Article next argues that achieving a more racially just society requires attention to the ways that tax laws exacerbate existing race-based economic inequality. This Article uses the example of the gift tax exemption for direct tuition payments to illustrate the ways that tax rules can exacerbate the racial wealth gap. In the context of any tax benefit statute, there are abundant opportunities for future research at the intersection of race and taxation. That work is made more difficult by the absence of readily available tax data on the basis of race, but other data sources can help fill the gaps.
Finally, the Article proposes a test for evaluating the distributional equity of any tax exclusion or deduction that results in an understatement of the donor’s or decedent’s transfer of wealth. Unlike a wealth transfer that is considered an item of consumption, a wealth transfer that has concomitant lifelong benefits, such as direct tuition payments for education, should not be allowed to reduce the donor’s transfer tax base. In the case of wealth transfer taxes, a particular tax benefit is inequitable if (1) it has disparate impacts on the basis of race and (2) the benefit is inconsistent with the overall policy objective of imposing a gift tax on inter vivos transfers that create substantial capital-like advantages to the donee while simultaneously reducing the value of the transferor’s estate. The gift tax exemption for direct tuition payments fails both parts of this test and should be repealed.

January 8, 2021 in Articles, Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)