Wills, Trusts & Estates Prof Blog

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

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)

Tuesday, April 21, 2020

Is Biden's Wealth Tax Plan a Planning Opportunity?

Biden

Joe Biden has emerged as the current front runner for the Democratic presidential candidate, so it is about time to review his wealth tax proposal. The proposition could have a profound effect on the transfer of wealth for millions of Americans.

Under current federal law, when an individual dies, that person receives a "step-up" in income tax basis for assets to the date of death. The person that the assets is transferred to then receives the benefit of smaller tax burden with less capital gains. Biden's proposal would be to eliminate this "step-up in basis" concept, and a taxpayer's death would cause an income tax realization event which would cause capital gain tax (20%) to be due, whether or not the securities are sold or the person is otherwise subject to federal estate tax.

This alteration could devastate many American's investment portfolios and how they plan to transfer investment properties to the next generation. But with current market values being depressed, capital gains could still be minimal. 

See Michael L. Mixell, Is Biden's Wealth Tax Plan a Planning Opportunity?, Barley.com, April 15, 2020.

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

April 21, 2020 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Monday, April 20, 2020

Don’t Give Your Adult Kids Your House

HouseGifting a house outright to an adult child or adding them to the property's deed may avoid the hassle of probate, but doing so may bring along its own slew of issues. These problems range from a potentially large tax bill to the house being in danger if the child files for bankruptcy.

Sometimes parents transfer a home to their child to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the indigent. But gifts or transfers made within five years of applying for Medicaid can lead to a penalty period when seniors are disqualified from receiving benefits.

If an adult child is gifted a house through inheritance or a will, they will also get a "step-up in tax basis." Meaning the value of the house upon the conveyance will not be based on the date they acquired it, but rather when the previous owner acquired it. Kenneth Robinson of Rocky River, Ohio had a client that received his mother's house as a gift - against his advice - prior to the mother's death. The mother purchased the house in 1976 for $16,000, but the son acquired the property with a market value of $200,000 with a tax bill of $32,000 because of the $184,000 gain.

However, Section 2036 of the Internal Revenue Code says that if the mother retained a “life interest” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift. There are specific rules for what constitutes a life interest, including the power to determine what happens to the house and liability for its bills. The executor of the person would then file gift tax return on the deceased's behalf to show that the recipient was given a remainder interest, or the right to inherit at the person's death.

See Liz Weston, Don’t Give Your Adult Kids Your House, Nerd Wallet, April 3, 2020.

April 20, 2020 in Current Affairs, Disability Planning - Property Management, Estate Planning - Generally, Gift Tax, Income Tax, Wills | Permalink | Comments (0)

Tuesday, April 14, 2020

Article on Time for a Tax Return Filing Fee

IrsEmily Cauble recently published an Article entitled, Time for a Tax Return Filing Fee, Tax Law: Tax Law & Policy eJournal (2020). Provided below is the abstract to the Article.

The IRS faces the monumental task of verifying, to the extent possible, the tax consequences reported on the hundreds of millions of tax returns filed each year. It does so with meager and shrinking resources. Some taxpayers burden the filing system more than others. At one extreme, a taxpayer who earns only income that is subject to third-party reporting and withholding and who claims the standard deduction adds very little to the IRS’s burden. At the other end of the extreme, a large business engaged in numerous complex transactions the tax treatment of which are not free from doubt demands significant resources if that taxpayer’s claimed tax outcomes are fully examined. In light of this landscape, this Article makes the novel proposal that Congress require payment of a tax return filing fee by some taxpayers. The amount of the fee would vary based on some of the factors that make each taxpayer more or less difficult to audit, with carve-outs for difficult-to-audit items that are disproportionately claimed by lower-income individuals.

The goals of the proposal are three: first, to make the system fairer, second, to raise additional revenue, and third, to improve efficiency by encouraging taxpayers to take into account the costs imposed on the tax administration system by their complex transactions.

April 14, 2020 in Articles, Current Affairs, Estate Planning - Generally, Income Tax | Permalink | Comments (1)

Monday, April 13, 2020

Article on COVID-19 and Section 1031: Anticipating IRS Extension Relief

Taxes2Bradley T. Borden Article entitled, COVID-19 and Section 1031: Anticipating IRS Extension Relief, Tax Law: Tax Law & Policy eJournal (2020). Provided below is the abstract to the Article.

Anyone who is in a section 1031 exchange, could have trouble finishing such exchange due to the current situation caused by COVID-19. The IRS appears to have authority to extend the section 1031 45-day and 180-day time periods, but they haven’t done so yet. This short piece considers what exchangers might do while they wait for hoped-for extensions from the IRS. The COVID-19 situation raises issues that differ from other federally declared disasters that have resulted in extensions of the section 1031 deadlines (i.e., COVID-19 is a national, not regional, issue and COVID-19 does not destroy property in the manner that fires, hurricanes, tornadoes, floods, earthquakes, and other typical natural disasters do). The attached paper provides some thoughts regarding what exchangers and their advisors might consider as they wait for the IRS to issue guidance related to the time periods.

Update: On April 9, 2020, the IRS published Notice 2020-23, extending the section 1031 deadlines for exchangers whose deadlines expire between April 1, 2020, and July 15, 2020.

April 13, 2020 in Articles, Current Events, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Sunday, April 12, 2020

Virus Relief Efforts Give Rise to New Tax Strategies

TaxincentivesMany small business owners such as brothers Hy and Adam Schwartz had a primary goal in mind: to their business - S&S Worldwide - in a position to financially recover once the virus pandemic is finally over. "We haven’t caught our breath to say, ‘Hey, this is a great time to transfer wealth to the next generation,'" Adam said.  But for entrepreneurs and others that have the ability to do so, thinking through tax strategies now will reap benefits later.

The filing deadline for federal income tax returns has been pushed back to July 15, giving wealthier Americans who generally owe money a reprieve on both their annual filing and their quarterly payments for the first half of the year. Advisers also say that government relief plans to mitigate the financial impact of the pandemic have created significant opportunities to reduce personal and business tax bills for years. Many of the programs are complex and the incentives based on limited resources during this crisis, thus taxpayers may find it difficult calculating which programs are going to provide the most benefits in the long term.

Quite a large amount of focus has been on the federal government’s $349 billion emergency effort to get money quickly to small businesses through the Paycheck Protection Program, run by the Small Business Administration. The relief is structured as a loan, meant to provide for up to 8-weeks of payroll, but if the business owner spends it according to the agency’s guidelines, it converts to a tax-free grant. The filing process started April 3, but some banks were unable to accept applications on that date. There are other options available that have not been in the spotlight:  the employee retention credit and the deferral on the payroll taxes are options that are better suited to some business owners, said Andrew Finkle, a partner in the Philadelphia office of the accounting firm Marcum.

See Paul Sullivan, Virus Relief Efforts Give Rise to New Tax Strategies, New York Times, April 10, 2020.

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

April 12, 2020 in Current Affairs, Current Events, Estate Planning - Generally, Income Tax, New Legislation | 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)

Thursday, April 9, 2020

CLE on International Tax Reporting for Estate Planners

CLEThe American Bar Association Section of Real Property, Trust & Estate Law is holding a webinar entitled, International Tax Reporting for Estate Planners, on Thursday, May 7, 2020 at 1:00 pm EDT. Provided below is a description of the event.

Join Barbara Kaplan, Co-Chair of Greenberg Traurig's Global Tax Practice, Karen Brodsky, lead partner of Deloitte's US International Private Wealth Tax Practice, and Rosemary Sereti, Managing Director with Deloitte's Washington National Tax and Tax Controversy Practices Groups, as they walk registrants through these important reporting requirements.

Speakers:

    • Karen Brodsky, Deloitte, New York, NY
    • Barbara Kaplan, Greenberg Traurig, New York, NY
    • Rosemary Sereti, Deloitte, Washington, DC

The ABA will seek 1.5 hours of CLE credit in 60-minute states and 1.8 hours of CLE credit for this program in 50- minute states. Credit hours are estimated and are subject to each state’s approval and credit rounding rules. Please visit americanbar.org/mcle for general information on CLE at the ABA.

April 9, 2020 in Conferences & CLE, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Wednesday, April 8, 2020

Article on Taxing the Poor Through Real Estate Transfers

TaxcalcDavid A. Simon recently published an Article entitled, Taxing the Poor Through Real Estate Transfers, Tax Law: Tax Law & Policy. Provided below is an abstract of the Article.

This Article collects data on real estate transfer taxes in Illinois. It shows that municipal transfer taxes are more likely to affect poor communities than affluent communities.

April 8, 2020 in Articles, Estate Planning - Generally, Income Tax | Permalink | Comments (0)