Wills, Trusts & Estates Prof Blog

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

Tuesday, August 11, 2020

How Conservation Easement Tax Shelters Became An Issue In A Current Georgia Congressional Race

Rome"The controversy over syndicated conservation easements tax shelters has raised its ugly head in the Congressional race in the 14th District in Georgia."

It is likely that representation of the district in Congress will be deterred by a primary run off for the Republican Party on August 11th. The runoff candidates for the nomination for the replacement of Tom Graves are neurosurgeon John Cowan and construction executive Marjorie Taylor Greene. 

Below is a statement Marjorie Taylor Greene's campaign issued criticizing her opponent for his connection to the syndicated conservation easement industry:

I’ve never been fond of rats, snakes, and swamp creatures... or liars. My opponent John Cowan is propped up and funded by the good ‘ole boy corrupt Rome swamp that is desperate for special favors and get out of jail free cards. Rome, Ga is plagued by a massive corrupt abusive tax shelter scam currently being investigated by the IRS and the DOJ. . . John Cowan only cares about slithering his way up to the big swamp in DC to join the other swamp creature and play the same age old game of greedy corruption all for power and money. The people won’t stand for this on August 11th! Vote Marjorie Taylor Greene to drain the swamp!"

Ms. Greene is the favorite to win the runoff as she finished first in the primary with 40.3% of the vote. John Cowan  came in second out of six with 21% of the vote. According to his website "he is Pro Trump, Pro Life and Pro Gun and is ready to “fight against any efforts by the left to rebrand socialism, undermine our Constitution or threaten our freedoms”.

If you own property and contribute an easement and passing on your rights to change the property to a qualified organization, you can take a federal income tax deduction for the value of that easement. "Since there is not a lot of market for easements you generally value them based on the difference between the before easement and after easement value of the property."

This allows an investor to invest in an easement and bring in a a whopping amount in tax revenue all for creating an easement. The IRS and the DOJ aren't too fond of the idea and the topic has become an issue in the congressional race. 

See Peter J. Reilly, How Conservation Easement Tax Shelters Became An Issue In A Current Georgia Congressional Race, Forbes, July 31, 2020. 

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

August 11, 2020 in Appointments and Honors, Current Events, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Wednesday, August 5, 2020

Higher Taxes Are Coming —Here's How to Prepare

TaxThe COVID-19 pandemic has produced a lot of uncertainty around our economy. Most of us have been worried about when we will be able to return to a normal work life or when our kids will be able to go back to school. For some of us, our lives have completely changed.

There is one thing that not everyone has been worried about: Taxes. It is likely that there will be an increase in taxes in the upcoming year. However, the good news is that unlike the many other issues we are uncertain about, we may actually have some control over this one. 

There are certain steps that we can take to mitigate the effects of future tax increases. 

As far as estate planning strategies, here are a few things you can do to prepare for an increase in taxes. 

  • Plan to gift exemption amounts
  • Take gains before your death 

Income Tax Strategies:

  • Accelerate income recognition by:
    • Converting your traditional IRA's to Roth IRA's
    • Selling appreciated assets now to fund your future spending needs
    • Intentionally taking gains in your revocable grantor trusts
    • Opting not to defer income into your deferred compensation plan
  • Defer deductions
  • Structure your investments to reduce taxes by:
    • Using lower tax realizing investments such as index funds
    • Investing inside life insurance policies

Devising tax planning strategies is a great way to plan ahead for an increase in taxes. Moving forward, this is a must to avoid harsh consequences from a tax increase. 

See John Jennings, Higher Taxes Are Coming – Here’s How To Prepare, Forbes, July 28, 2020. 

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

August 5, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Friday, July 31, 2020

Benefits of captives: They can insure against pandemics

CaptiveInsurance companies represent an overwhelming majority of Fortune 500 companies and many of those companies have created wholly-owned insurance companies, referred to as "captives." A captive insurance company is a "closely-held insurance company that does not write policies for the general public. A typical captive insurance company insures risks of the captive owner’s businesses that are otherwise unavailable in traditional insurance markets or that are extremely expensive to obtain."

There are many pros to captives. Since captive insurance companies are a C corporation, they can issue more than once class of stock and can also pay out “qualifying” dividends at preferential income tax rates. Captives also create a safety net for future risks. Further, captives may offer expanded coverage while significantly reducing insurance costs. 

Further, a captive "can insure against pandemics and other non-damage related business interruption events, such as loss of rental income and lost profits."

"On an annual basis, the premiums paid to the captive in excess of its claims and operating expenses can be made available for investment or distribution to shareholders. An added benefit of captives is that there may also be opportunities for gift and estate tax savings to the shareholders of captives."

Below is a list of candidates for captives:

  • Profitable business entities seeking substantial annual tax deductions.
  • Business owners with multiple entities or businesses that can create multiple operating subsidiaries or affiliates.
  • Businesses with $1,000,000 or more in annual profits.
  • Businesses with uninsured or underinsured risk.
  • Business owners interested in personal wealth accumulation and/or estate planning.

See, Eric Allon. Allen Hankins and Jonathan L. Korb, Benefits of captives: They can insure against pandemics, Boston Business Journal, July 28, 2020.

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

July 31, 2020 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Saturday, July 25, 2020

Charitable Giving Increases As Congress Looks To Boost Donations

Glass-jar-full-of-cois-with-donate-written-on-it-charity-donation-philanthropy_largeAmericans gave nearly $450 billion to charity last year, which is one of the highest amounts ever recorded. This number comes as lawmakers have been looking for ways to expand tax breaks for donors amid the coronavirus pandemic. 

Charitable donations rose 2.4 percent in 2019 according to an annual survey by Giving USA. Individual giving accounted for about 69% of all donations, but the biggest jump came from the generosity of corporations. In 2019, businesses gave about $21 million, an increase of 11.4% from 2018. Also, giving by foundations reached a record high of $75.7 billion. 

"In March, lawmakers included a measure in the coronavirus economic rescue bill that allows individuals to write off as much as $300 in donations for 2020 even off they don't itemize their taxes."

Typically, deductions for charitable donations are only afforded to those who itemize their tax returns or add up all of their individual tax breaks, which is only about 10% of taxpayers.

See Laura Davison, Charitable Giving Increases As Congress Looks To Boost Donations, Bloomberg News, June 16, 2020.

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

July 25, 2020 in Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Thursday, July 23, 2020

L.A. School Union Says New Taxes On The Rich Are Needed To Reopen City Schools

F58d7407-73e8-4873-9e6f-6ac2c2f50fe8The leading Los Angeles teachers union is calling for new wealth taxes aimed at the rich, especially millionaires and billionaires, as a condition to reopen city schools in September. 

"The United Teachers of Los Angeles (UTLA) called for California to implement both a wealth tax on unrealized capital gains for the state's billionaires, and surtaxes on state residents who earn more than $1 million as year, to offset safety measures needed to safely reopen the city's schools."

According to UTLA, these combined measures would result in $14.5 billion a year in tax revenues. UTLA has recommended keeping the schools closed and continuing to focus on distance learning resources until these conditions are met. 

“It is time to take a stand against Trump’s dangerous, anti-science agenda that puts the lives of our members, our students and our families at risk,” said United Teachers Los Angeles President Cecily Myart-Cruz in a statement.

The union estimated the costs to implement the necessary safety measures could surpass $250 million, funds the union say would be available if "federal, state, and local governments are willing to finally prioritize pupils over plutocrats."

On the other side, the American Academy of Pediatrics (AAP) urged school systems to reopen in September, arguing that keeping children at home is a greater health risk than the coronavirus. Children are less likely to become infected with Covid-19, and if they do, they’re less likely to become symptomatic and spread the virus, the AAP argued in a statement in late June.

UTLA also called for a moratorium on new charter schools and accused charter schools operating in the city of “double-dipping” by accepting federal CARES act funding while also receiving state funding, which was not impacted by the pandemic.

See Tracey Longo, L.A. School Union Says New Taxes On The Rich Are Needed To Reopen City Schools, Financial Advisor Magazine, July 14, 2020. 

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

July 23, 2020 in Estate Planning - Generally, Income Tax, Teaching | Permalink | Comments (0)

Tuesday, July 7, 2020

Estimated Taxes Due July 15: Tax Return Pros Warn About Special Issues For 2020

TaxTax day 2020 is July 15, and for some taxpayers it could be a financial nightmare. COVID-19 prompted the IRS to delay the usual April 15 federal tax return deadline to July 15, but it isn't just 2019 tax returns that are due.  The IRS also postponed the first two 2020 quarterly estimated-tax payments which are usually owed by April 15 and June 15. 

On July 15 it's possible for someone to owe half of their estimated taxes for 2020 plus any taxes owed with their 2019 tax return. This is is bad news for people whose income has tanked in the past few months due to the pandemic. There are two ways to avoid a penalty: (1) you owe less than $1,000 in tax for the year and (2) you pay at least 90% of tax owed for the current year (2020), or 100% of the tax you paid for the prior year (2019), whichever is smaller. 

If you don't pay enough taxes, IRS Form 2210 helps you calculate any penalty for underpayment of estimated tax. It is not clear whether or not the IRS will reduce or waive the penalty in 2020 or lower the safe-harbor percentages, but it is a possibility that these things will be considered. 

In addition, there are four special issues in 2020 related to estimated-tax payments and the calculation of how much you owe:

  • your stimulus check
  • paycheck protection program loans
  • unemployment benefits
  • ongoing financial hardship from the coronavirus pandemic

See Bruce Brumberg, Estimated Taxes Due July 15: Tax Return Pros Warn About Special Issues For 2020, Forbes, June 19, 2020. 

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

July 7, 2020 in Current Events, Estate Planning - Generally, Income Tax | 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)

Wednesday, June 3, 2020

23 Ridiculous Tax Loopholes

Tax-LoopholesThe IRS allows tax deductions in order to promote certain behaviors like saving for retirement and it is your right to know about the ones you are entitled to. Contrary to what many people think, you do not have to be rich to take advantage of tax loopholes. Ordinary people like married couples, single people, and even poor people can take advantage of tax loopholes. 

Here are a few of the loopholes available:

The 529 Plan Double Dip Loophole

When you use a 529 plan to pay for college expenses, you don't have to pay taxes on the amount you earned from what you invested. If you qualify based on income limits, you can take advantage of the American opportunity tax credit or the lifetime earning credit. 

The Backdoor Roth IRA Loophole

There are some income restrictions for people who contribute to a Roth IRA, but there's a way around these restrictions. If you earn more than $139,000 for a single taxpayer or $206,000 as a couple, you make too much to contribute directly to a Roth IRA. However, you can contribute to a traditional IRA. You can then convert the regular IRA into a Roth IRA. When you retire you can withdraw from your Roth without paying income taxes when you take the money out. 

Carried Interest Loophole

This one is for hedge fund managers that get their income from funds whose profits are considered carried interest realized over the long term, so their income is taxed at the long-term capital gains rate instead of the standard income tax rate.

Click the link below for the other 20 loopholes, there may be a few you can take advantage of!

See Brian Nelson, 23 Ridiculous Tax Loopholes, GO Banking Rates, June 2, 2020. 

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

June 3, 2020 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Monday, April 27, 2020

Article on Gifts in Contemplation of Death: Why Can't Section 2035 Simply Die?

TaxclockStephanie J. Willbanks recently published an Article entitled, Gifts in Contemplation of Death: Why Can't Section 2035 Simply Die?, Wills, Trusts, & Estates Law eJournal (2020). Provided below is the abstract to the Article.

Income and wealth inequality has become a popular topic. There are a myriad of ways to reduce such inequality utilizing the tax system, either the income tax or the transfer taxes. Revitalizing the estate tax by reducing the exemption amount and adjusting the rate structure would reduce inequality. Much has been written about the viability of the estate tax and possible alternatives. This article does not revisit that analysis. Instead, it assumes that the estate tax will remain a viable component of the overall tax system. It analyzes one small segment of the estate tax – §2035 – and argues that repeal would simplify the estate tax without reducing revenues. Commentators have advocated for integration and simplification of the gift and estate tax provisions governing retained interests for over 70 years, but §2035 has received relatively little attention.

April 27, 2020 in Articles, Current Affairs, Estate Administration, Estate Planning - Generally, Income Tax | Permalink | Comments (1)

Saturday, April 25, 2020

CLE on Primer on Life Insurance and Basic Structuring

CLEThe Section of Real Property, Trust & Estate Law of the American Bar Association is presenting a webinar entitled, Primer on Life Insurance and Basic Structuring, on Tuesday, April 28, 2020 at 1:00 pm - 2:30 pm EST. Provided below is a description of the event.

This fundamentals program will provide an overview of commonly used life insurance products and basic structuring to give planners the tools to advise clients who own or are considering purchasing a life insurance policy.

The topics covered will include:

    • Types of insurance products
    • Suitability
    • Taxation
    • Life insurance trusts in general
    • Considerations for life insurance trust trustees

Speaker include:

    • Bruce Tannahill, Mass Mutual, Phoenix, AZ
    • Melisa Seyhun, Merrill Lynch, Chicago, IL

April 25, 2020 in Current Affairs, Disability Planning - Health Care, Disability Planning - Property Management, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)