Wills, Trusts & Estates Prof Blog

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

Thursday, April 1, 2021

Democrats Weigh Capital Gains Tax Hike For Millionaires At Death

Tax"Senate Democrats are circulating a plan that would trigger tax bills on the assets of the wealthy after they die as the lawmakers seek new sources of revenue to fund trillions of dollars in infrastructure spending and social programs." 

The legislation seeks to end a part of the tax code that allows assets to be passed onto heirs without "immediately generating tax bills." Democrats have long been aiming at these assets to be taxed. Joe Biden's campaign has encouraged the idea. 

Under current tax law, people are able to pass assets to their heirs without transferring capital gains from the property's appreciation, referred to as "stepped up basis at death." Basically, heirs will not have to pay taxes "on any of the gains that accused under the previous owner." 

Under the new plan, taxes would be levied on those assets of the wealthy at death subject to a $1 million exemption. 

According to Chris Van Hollen of Maryland, “The stepped-up basis loophole is one of the biggest tax breaks on the books, providing an unfair advantage to the wealthiest heirs every year. . . “It’s time to stop subsidizing massive inheritances for the rich and start investing in everyday Americans.”

This stepped up basis tax provision has become increasingly popular for the Democratic Party, although, under President Barack Obama, the proposal was blocked by Congress. 

With recent changes in the Senate and the House, it'll be interesting to see where the new proposed legislation goes. 

See Laura Davison, Democrats Weigh Capital Gains Tax Hike For Millionaires At Death, Financial Advisor, March 30, 2021. 

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

April 1, 2021 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax, New Legislation | Permalink | Comments (0)

Monday, March 22, 2021

A tax break for retirees is back. Here’s how to use it — and what to avoid

TaxA tax break that disappeared last year has resurfaced in full force this year. This tax break benefits retirees in their 70s and up. These tax breaks are qualified charitable distributions, "which allow individual retirement account holders to divert some of their federally taxable required distributions to charity." The deductions allow IRA holders to make donations and reduce their federally taxable income. 

Qualified charitable deductions rose to fame in 2018 when Donald Trump's 2017 tax law was enforced. 

Now, they may be even more helpful than ever since they have been revived following their disappearance due to the pandemic. More specifically, the Cares Act effectively cancelled required minimum distributions (RMDs). 

Even though you could still use QCDs, their effectiveness was almost completely eliminated due to the cancellation of RMD requirements in 2020. 

Now, retirees can take advantage of these contributions. However, if considering QCDs, you should be careful not to "trip over yourself." You should consult with your estate planning attorney and/or financial advisor to discuss the best way to take advantage of these contributions, or possibly to stay away from them. 

See Allan Sloan, A tax break for retirees is back. Here’s how to use it — and what to avoid., Washington Post, March 18, 2021. 

Special thanks to Naomi Cahn (Justice Anthony M. Kennedy Distinguished Professor of Law; Nancy L. Buc ’69 Research Professor in Democracy and Equity; Director, Family Law Center --  University of Virginia School of Law) for bringing this article to my attention.

March 22, 2021 in Estate Administration, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Thursday, March 11, 2021

Aretha Franklin’s Estate Signs Tentative Deal Over Back Taxes Owed

ArethaSince Aretha Franklin's death in 2018, there has been a looming debt ganging over her estate. After three years, Franklin's estate is moving toward an agreement with the Internal Revenue Service (IRS) to repay this debt which is comprised of "thousands and thousands of [dollars] in federal revenue taxes that the singer owed throughout her life. . ." 

The settlement requires the estate to put aside 45% of all income it receives to repay the tax responsibility that Franklin accrued from 2010 to 2017. Also, $800,000 is to be paid to the IRS within 5 days of the deal's approval. 

A document submitted in court on February 19, states that the IRS has declared that the state owes $7.8 million, but apparently, this determination did not include about $3 million that the estate alleged it paid at the end of 2018. 

Under the deal, 40% of the estate's revenues will be put toward ongoing taxes and funds to Franklin's heirs. This 40% will be generated by music royalties and licensing and is allowed to be held in escrow. 

If a deal is reached, the estate will have room to breathe and bring in revenue. 

The worth of Franklin's estate has not been fully determined but it has been estimated to be around $80 million. 

There were also multiple wills found, which has lead to a stark divide between Franklin's alleged heirs as members of Franklin's family have been battling to prove which documents should be probated. 

See Ben Sisario, Aretha Franklin’s Estate Signs Tentative Deal Over Back Taxes Owed, N.Y. Times, March 2, 2021. 

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

March 11, 2021 in Current Events, Estate Administration, Estate Planning - Generally, Income Tax, Music, New Cases, Wills | Permalink | Comments (0)

Tuesday, March 9, 2021

Sen. Elizabeth Warren introduces "ultra-millionaire" wealth tax bill

TaxSenator Elizabeth Warren introduced a bill in the senate that looks to impose a new tax on the assets of "America's wealthiest individuals." 

This plan is very similar to a proposal that was the a big talking point of Warren's campaign when she ran for president in 2020. Warren's want of a tax increase on millionaires and billionaires in the U.S. is not new. 

The plan would place a 2% tax on those with a net worth between $50 million and $1 billion. Anyone with a net worth over $1 billion would be subject to a 3% tax. Anyone with a networth below $50 million would be safe from the tax. 

According to the tax bill's sponsors, the tax would raise $2.75 trillion in tax revenue over a ten-year period. 

Warren claimed, "The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the COVID crisis began."  Warren also stated, "A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations."

See Ursula Perano, Sen. Elizabeth Warren introduces "ultra-millionaire" wealth tax bill, Axios, March 1, 2021. 

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

March 9, 2021 in Current Events, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Wednesday, February 24, 2021

IRS Rolls Out Online Option For Submitting Authorization Forms

TaxThe Internal Revenue Service (IRS) has released a new online option that will allow tax professionals to electronically submit authorization forms. 

The two forms covered under the new option are "Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization. These forms allow taxpayers to authorize the IRS to disclose their tax information to third parties, such as, tax professionals." 

The Form 2848 allows taxpayers to authorize eligible individuals to speak to the IRS on their behalf and also allows that person to receive related confidential tax information. 

The Form 8821 isn't as useful because it only allows the appointed representative to inspect or receive confidential information verbally or in writing "for the type of tax and the years or periods you list on the form." This form does not allow anyone to speak on your behalf. 

You can use the new options by creating a Secure Access Account and is fairly simple and quick to set up. 

See Kelly Phillips Erb, IRS Rolls Out Online Option For Submitting Authorization Forms, Forbes, January 25, 2021. 

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

February 24, 2021 in Current Events, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Friday, February 5, 2021

Biden Wants To Replace IRA And 401(k) Tax Deductions With Tax Credits

Wealth taxThe Biden Administration has proposed a plan that would “change the tax structure for all ERISA plans and IRAs,” Busch said during the virtual event. “Instead of giving investors a tax deduction, they’re talking about changing it to a tax credit. This may change the dynamics of IRAs and ERISA and 401(k) plans if they get this through, which is a part of what Treasury Secretary nominee Janet Yellen is working on over the next 100 days.”

The plan would replace the tax deduction for IRA and 401(k) contributions with a tax credit. 

According to Busch, doing away with these tax deductions could have a severe impact on the way Middle America saves for retirement. 

Another change that has been popular in conversation is the proposed corporate alternative minimum tax that would get rid of tax cuts for anyone that makes more than $400,000 a year.

President Biden proposed a $1.9 trillion package, but recently met with a group of Senate Republicans to discuss a "skinny stimulus" plan which would reduce the plan to $600 million. 

Busch further stated,

“Keep in mind how much stimulus has already been released,” he added. “Some $10.4 trillion has been allocated to the economy. If you are wondering why companies and stocks have recovered, this is why. And there is still $4 trillion that hasn’t made its way into the economy yet.”

It is important to keep these proposed changes in mind when considering your estate and retirement plans, as things could change soon. 

See Tracey Longo, Biden Wants To Replace IRA And 401(k) Tax Deductions With Tax Credits, Financial Advisor, February 1, 2021. 

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

February 5, 2021 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Sunday, January 3, 2021

President signs year-end funding, COVID-19 relief legislation; tax provisions are enacted

TaxOn December 27, President Trump signed the Consolidated Appropriations Act, 2021." The legislation includes "over $900 billion fo coronavirus (COVID-19) relief programs, government funding of $1.4 trillion, and myriad tax provisions." 

The legislation includes a tax provision that will allow recipients of Paycheck Protection Program (PPP) loans to deduct related costs. The CARES act will also be extended as well as expanded. 

Tax measures that will result from the new legislation includes:

COVID-Related Tax Relief Act

  • Extension time for repayment
  • Additional 2020 Recovery Rebates
  • Clarification that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income from forgiveness of PPP loans
  • Allowance of an election regarding the tax treatment of certain farming losses for 2018, 2019, and 2020
  • and more

There will always be permanent extensions of temporary provisions and long-term extensions of temporary provisions. Also included will be short-term extensions of temporary provisions. 

There are also numerous miscellaneous tax provisions that include: 

  • Modifications to the low-income housing tax credit rate, including a new minimum rate of 4% for certain buildings
  • Depreciation of certain residential rental property over 30-year period, allowing for the use of 30-year ADS depreciation for residential real property placed in service prior to January 1, 2018, held by an electing real property trade or business in certain circumstances
  • Expansion of current section 48 energy credit to include waste “energy recovery property”
  • Extension of current section 48 energy credit for offshore wind facilities to January 1, 2026
  • Minimum rate of interest for certain determinations related to life insurance contracts
  • Retirement provisions
    • Modification to minimum age for distributions during working retirement
    • Temporary rule preventing partial plan termination
  • Employee retention credit (ERC) and rehiring tax credit
    • Clarifications and technical improvements to the CARES Act employee retention credit, including a clarification regarding the definition of “gross receipts,” a modification to the treatment of health plan expenses, and improved coordination with the PPP
    • Extension of the ERC to July 1, 2021, and expansions including increase in the credit percentage from 50% to 70%, increased per employee limitation, and modifications to the definition of eligible employer
  • Business meals deduction—a temporary allowance of a full deduction for business meals paid or incurred between December 31, 2020, and January 1, 2023
  • Earned income tax credit and child tax credit—a temporary special rule for determination of earned income
  • Charitable contributions
    • Extension of the CARES Act non-itemizer charitable contribution deduction for certain contributions through 2021
    • Extension of the CARES Act modification of donor percentage-of-income limitations for certain charitable contributions through 2021
    • For corporations, a temporary suspension of limitations on the deduction for charitable contributions associated with qualified disaster relief made from January 2020 through late February 2021
  • Health and dependent care flexible spending arrangements, temporary special rules for health and dependent care flexible spending accounts with unused balances
  • Life insurance—reduce the required interest rates used to determine if a policy meets the definition of life insurance for federal tax purposes

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

January 3, 2021 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0)

Friday, January 1, 2021

There’s a Way Biden Can Raise More From the Rich Without Higher Taxes

Wealth taxJoe Biden has offered a proposed tax plan that would apply higher taxes on Americans that make more than $400,000 a year. Joe Biden believes that the tax increases would reduce inequality among other things. 

However, if the Republican party comes out on top in the Georgia runoff elections, Biden will have a hard time succeeding with his tax proposal. The Republican Party has been clear that they are against tax increases. 

If this is the case, Joe Biden may have another option: be more swift in enforcing the current tax laws. 

According to the New York Times, "Tax experts have long identified a large “tax gap” between the amount Americans owe and what is actually collected. This is disproportionately a result of underpayment of taxes by high earners, especially in certain types of closely held partnerships and midsize businesses that face little scrutiny from either the Internal Revenue Service or outside investors." 

With changes in the IRS's budget, rich people have received less attention, which has allowed them to get away with "questionable or illegal" tax strategies. If the IRS's budget were to big enough to allow them to go after the rich and keep tabs on the poor, a large tax increase may not be necessary. Instead, the focus would be on holding the rich accountable for following the tax laws and using legal tax strategies. 

See Neil Irwin, There’s a Way Biden Can Raise More From the Rich Without Higher Taxes, The New York Times, December 22, 2020. 

Special thanks to Matthew Bogin, (Esq., Bogin Law) for bringing this article to my attention. 

January 1, 2021 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (1)

Monday, December 28, 2020

A California Plan to Chase Away the Rich, Then Keep Stalking Them

Estate planning"A proposed wealth tax would apply for a decade to anyone who spends 60 days in the state in a single year." 

The California Legislature is considering applying a wealth tax on "residents, part-year residents, and any person who spends more than 60 days inside the state's borders in a single year." The wealth tax would also apply to those that move out of state for a decade.

Although the new wealth tax plan would likely be within the confines of the California Constitution, it would likely be unconstitutional per the U.S. Constitution to reach across state borders to tax citizens. 

This tax plan would apply to out-of-state college students going to school in California, those having a major medical procedure in California needing an extended stay and those that vacation in California during the cold winter months on the East coast. 

The proposed wealth tax would place high burdens on a large number of people and that number would increase greatly every year. 

See Hank Adler, A California Plan to Chase Away the Rich, Then Keep Stalking Them, Wall Street Journal, December 18, 2020.

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention. 

December 28, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Friday, December 11, 2020

A wealth tax packs a powerful fiscal punch

Wealth taxThe pandemic has created economic turmoil in essentially every country. Due to the collapse in economic activity, many believe that government intervention could be the saving grace. This revelation has led politicians and policymakers to consider increasing taxes. 

Now is the best time to think about the best way to tax. The Wealth Tax Commission recently published its final report in conjunction with a series of background evidence papers. Within the reports is contained history and theoretical motivations in favor and against net wealth taxes. Apparently, the information in the reports is critical that countries cannot afford to avoid it. 

In regard to wealth taxes, Martin Sandbu stated, "[I]n most rich countries, wealth is distributed so that if the threshold for paying wealth taxes is set to include just the wealthiest 10 per cent of the population (with no tax on wealth below that threshold), the taxable wealth amounts to about 2 to 2.5 times annual gross domestic product. In other words, a 1 per cent tax on wealth above the amount that gets you into the wealthiest tenth should raise 2 per cent to 2.5 per cent of GDP, before any losses due to avoidance and evasion." 

Sandbu claims that the wealth tax presents a great potential for revenue and should be considered. 

See Martin Sandbu, A wealth tax packs a powerful fiscal punch, Financial Times (U.K.) 

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

December 11, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)