Wills, Trusts & Estates Prof Blog

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

Tuesday, January 15, 2019

9 Ways to Gift Your Assets to Charity

Charity1Donating to charity can be done for a multitude of reasons: giving back to society, tax saving, creating or extending a family legacy, or standing behind a specific cause or foundation. Whatever the purpose behind the giving, it is important to understand the various ways you can give to maximize impact while reaping the applicable benefits.

Here are a number of avenues to donate your assets to charity.

  1. Outright Gifts of Cash, Securities and Real Estate
    • This is the easiest way, and the majority of charities accept this method.
  2. Giving Tangibles
    • Art and other collectibles are governed by different rules, and many charities may not be equipped to accept the gifts. If the organization is able to accept the gifts, the associated income tax deduction also depends on other factors.
  3. Charitable Gift Annuity
    • This arrangement is part charitable gift, part purchase of an annuity contract with a term equal to the life of the donor.
  4. Donor-Advised Funds
    • DAFs are accounts set up within a charitable organization, and the donor contributes personal assets to the account where the contribution can be invested and grow tax-free until a grant is made to a qualified charity.
  5. Retained Life Estate
    • The donor can gift a home, farm, or other form of property to a charitable organization but retain a life estate. When the donor dies, the property passes to the charity.
  6. Family Foundations
    • Foundations require significant administrative oversight, and the average person may not be able to create one. For those clients than can create a foundation, they can maintain complete control and pass that control on to others.
  7. Charitable Remainder Trust
    • This is an irrevocable trust where the grantor or other non-charity receives a certain stream of income during the term of the trust, then the remainder passes to a charitable organization when the trust ceases to exist.
  8. Charitable Lead Trust
    • This is an irrevocable trust where a charity or charities receive a certain amount during the term of the trust, then the remainder passes to the donor's heirs and the culmination of the trust.
  9. Charitable LLC
    • This is a new method, and is governed by applicable state corporate law. The LLC is not tax-exempt, but the income tax liability as well as deductions and losses are passed through.

See Catherine Schnaubelt , 9 Ways to Gift Your Assets to Charity, Forbes, January 9, 2019.

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

January 15, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Spinning Straw into Gold: Modifying Irrevocable Trusts

TrustsIrrevocable trusts have been part of estate planning for years. They have been used for a variety of purposes, such as to remove assets from a person's estate in order to reduce taxes, to protect assets from creditors, and to provide management of assets for beneficiaries. Historically, these trusts could run for perhaps 100 years or so, but often terminated much earlier than that. More recently, many states have eliminated or modified their laws so as to allow trusts to run forever, or at least for periods that are, for all practical purposes, forever. In addition, creditor protection has become much more important to some persons given the litigious nature of our society. The larger generation-skipping tax exemption has also fueled an increased interest in keeping assets in trust to avoid future taxes. Thus, there are now many more trusts that will run for very long periods than used to be the case.

Many clients wish to have the benefits of an irrevocable trust but do not like the idea that the trust is actually irrevocable. Estate planners have also sought ways to modify trusts that are irrevocable as a result of changed circumstances or because the planner's client is the beneficiary who objects to the terms of the trust. In response to this, state laws have been evolving over time to permit changes to what were once instruments that could not be modified. These changes raise several issues, both legal and otherwise.

For fiduciaries, this brave new world can be a minefield, exposing the fiduciary to possible litigation for making, or perhaps for not making, a change that state law now permits.

See Sarah Change & Scott Bieber, Spinning Straw into Gold: Modifying Irrevocable Trusts, ThompsonCoburn.com, January 8, 2019.

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

January 15, 2019 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, New Legislation, Trusts | Permalink | Comments (0)

Monday, January 14, 2019

Police Investigating Theft of Assets from Aretha Franklin's Estate

ArethaIt appears that the drama of the late soul diva is continuing, with police in Chicago stating that there is an active theft investigation involving Aretha Franklin's mansion, and that it began before her death in August. It is also reported that the investigation involves someone using her funds inappropriately, but was unclear of how much.

Franklin's son Edward, 61, is also in a court battle with the estate in an effort to attain a court order for the estate to hand over monthly financial documents to her heirs. The estate is withholding the statements because it could allegedly have a negative impact on the criminal investigation of the missing assets.

The estate is also being audited by the IRS, claiming that the diva owed the Service more than $6.3 million in back taxes and $1.5 million in penalties. The estate is contesting the claim, stating there is a dispute over what was and was not income for the singer.

See Leah McDonald, Police Investigating Theft of Assets from Aretha Franklin's Estate, Daily Mail, January 11, 2019.

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

January 14, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Income Tax, Intestate Succession, Music, New Cases | Permalink | Comments (0)

Wednesday, January 9, 2019

How The Government Shutdown Affects Clients' Taxes

TaxcalcThe 21st federal government shutdown since the modern federal budgeting process was implemented is now in its third week as the Trump Administration desires $5 billion for a wall along the southern border. But with the shutdown comes thousands of IRS employees furloughed, and may have clients questioning what will happen to their tax returns and refunds.

Jeff Fosselman, a CPA/CFP and J.D. and senior wealth advisor for Relative Value Partners, says that though the IRS is not completely shut "it is significantly scaled back." Though it was originally reported that taxpayers would not receive any tax refunds, that has been withdrawn and reversed. The agency will still be processing electronic and paper returns and all those that are required to pay in are expected to pay at the appropriate time.

High-net worth taxpayers usually file extensions and "file as late as possible,” comments Mary Kay Foss, a CPA in Walnut Creek, California. Amended returns, however, will not be processed, and these are usually also filed by high-net worth individuals. “Any individual involved in lending that requires tax return transcripts for underwriting will be impacted as well, as the issuance of transcripts is limited during the shutdown to requests related to disaster relief.”

Audits have also been shuttered - unless those that are hindered by the statute of limitations. This will not increase the time a taxpayer has to come to an agreement with the agency. Many clients are also unaware that state tax returns and refunds are also affected.

See Jeff Stimpson, How The Government Shutdown Affects Clients' Taxes, Financial Advisor, January 7, 2019.

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

January 9, 2019 in Current Affairs, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Monday, January 7, 2019

Article on Issues Taxing Cryptocurrency and the Policy Behind a Safe Harbor for Exchanges and Users

CryptoStan Sater recently published an Article entitled, Issues Taxing Cryptocurrency and the Policy Behind a Safe Harbor for Exchanges and Users, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

The U.S. federal tax framework for virtual currency remains ambiguous. In the face of emerging technology, the IRS has taken a cautious approach using a “best guess” tax treatment until the technology is sufficiently mature. In particular, for this rapidly evolving ecosystem, a careful regulatory approach is prudent. Regulations that are hastily written have the chance of stifling innovation or force companies to seek jurisdiction elsewhere. However, legal ambiguity and uncertainty in this wait and see approach may have a negative impact on startup investment and impact individuals honestly using the technology. This paper looks at IRS statements and previous actions in the space while highlighting current gaps that must be filled. Until the IRS can give more complete tax guidance, Congress should provide safe harbor legislation so users and businesses are not unnecessarily penalized for attempts to comply with their tax liabilities.

January 7, 2019 in Articles, Current Affairs, Estate Planning - Generally, Income Tax, Technology | Permalink | Comments (0)

Sunday, January 6, 2019

Big Changes in Tax Law: New Rates Likely to Affect Everyone

TaxesThough having to pay taxes is a constant of life, the particulars of the tax law changes with every year. 

“The biggest tax law change in 30 years is in effect for 2018. Everyone, whether their tax situation is simple or complex will be impacted,” says ENJ Financial Tax Manager Whitney Gum, CPA. The major changes are larger brackets and a drop in rates, meaning the same taxable income last year will be at a lower rate.

Some itemized deductions may be limited, but could include medical expenses, state and local taxes, mortgage interest and donations to charities. The local and state tax deductions have a cap at $10,000, and corporate tax rate has decreased to a flat 21%.

“Another huge change, is the implementation of the Qualified Business Income Deduction (QBID),” Gum said. “This is a 20% deduction equal to the amount of qualified business income of sole proprietorships, partnerships, and S corporations. This is an area where planning is very important to make sure the taxpayer is receiving the maximum benefit of this deduction.”

See Dawnita Fogleman, Big Changes in Tax Law: New Rates Likely to Affect Everyone, Woodward News, January 1, 2019.

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

January 6, 2019 in Current Affairs, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation | Permalink | Comments (0)

Thursday, January 3, 2019

Estate Tax Easing

IRAWith the Tax Cuts and Jobs Act increasing the gift and estate tax exemption to $11 million per person, advisors are focusing more on the income concerns of heirs rather than decedents. One of those major concerns is taking the required minimum distribution (RMD) from an IRA for the year of the decedent's death.

Overlooking taking the full RMD for the last year of a person can incur a costly penalty, 50% of the remaining RMD that was not withdrawn. This often incurs when the decedent passes away late in a year and the beneficiary does not discover the shortfall until the next tax year. 

However, if this does occur, there is a way for a beneficiary to properly explain the shortfall to the IRS: Form 5329 waiver request. This form should be filed as soon as the shortfall is discovered and explain the circumstances on why the shortfall happened. If the beneficiary is a surviving spouse, the RMD is not eligible for a rollover. "In addition, the first monies taken out during a given year from the traditional IRA are considered to be applied toward the RMD amount for that year."

See Seymour Goldberg, Ed Slott's IRA Advisor: Tax & Estate Planning for Your Retirement Savings, January, 2019.

 

January 3, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Aretha Franklin Attorney: $3 Million in Back Taxes Paid to IRS

ArethaDavid Bennett, a representative for the estate of the late singer Aretha Franklin, said the estate has paid at least $3 million in back taxes to the IRS since her death in August. The estate is being audited by the Internal Revenue Service, claiming that the estate owes $6.3 million in back taxes from 2012 to 2018 and $1.5 million in penalties.

"We have a tax attorney. All of her returns have been filed," Bennett said. The estate is disputing the IRS's claims, saying that the agency is confused on what was consider Franklin's income and what was the extent of her expenses. Documents filed in court after Franklin's death did not mention the value of her estate, which could run into the tens of millions.

In 2008, the singer said an attorney's mistake caused her $700,000 mansion in Detroit to slip into foreclosure over $445 in 2005 taxes and late fees. The Detroit Free Press reported then that Franklin owed a total of $19,192 in back taxes on the property through 2007.

See Aretha Franklin Attorney: $3 Million in Back Taxes Paid to IRS, Fox News, December 28, 2018.

Special thanks to Laura Galvan (Attorney, San Antonio, Texas) for bringing this article to my attention. 

January 3, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Income Tax, New Cases | Permalink | Comments (0)

Wednesday, January 2, 2019

Article on A Critique of BEAT Critiques

TcjaOmri Y. Marian recently published an Article entitled, A Critique of BEAT Critiques, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

Of all the new base-broadening rules enacted in the Tax Cut and Jobs Act, none has been subject to more complaints than the BEAT. The essay argues, that while there is much to improve about the BEAT, a significant part of the criticism against it is unwarranted. Many of the critiques make use of unlikely hypothetical business structures to demonstrate supposed failures in the operation of the new law. Many of the hypotheticals used, however, are either irrelevant (as they assume business structures that no taxpayers would reasonably use) or extremely rare. In other instances the examples used are more realistic, but the complaints are made against the successful operation of the law as intended.

January 2, 2019 in Articles, Estate Administration, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Sunday, December 30, 2018

CLE on New IRS Rules for LLCs and Partnerships - and Their BIG Impact

CLEThe National Business Institute is holding a webinar entitled, New IRS Rules for LLCs and Partnerships - and Their BIG Impact, on Thursday, January 24, 2019, from 12:00 p.m. to 3:00 p.m. Central. Provided below is a description of the event.

Program Description
Stay Up to Date on IRS Rules Impacting LLCs and Partnerships
Why spend countless hours trying to interpret and decipher IRS rule changes concerning LLCs and partnerships? This insightful course will take a closer look at the new rules and provide guidance on who is impacted. Don't miss this chance to get up to date with the latest developments - register today!
Understand what is included in the new rules and the implications they may have for different business clients.
Review the rule implementation timeline for changes to remain in compliance with changing deadlines.
Discuss the effect new IRS rules will have on future mergers and acquisitions.

Who Should Attend
This course is designed for attorneys. Accountants and paralegals will also benefit.

Course Content
What Tax Reform Means for LLCs and Other Pass-Through Entities
How Big are These Changes, Really?
What do the New Partnership Rules Say? What are the Implications?
Who's Impacted? What You May Not Know...
Time Frame of Significant Changes, Deadlines and Effective Dates
IRS Form 1065 K-1: Changes (and Clarification)
Who Can Elect Out of the New Provisions?
Impact on the LLC Operating Agreement: Changes You Need to Make NOW
What is the Partnership Now Directly Liable For?
New Rules Governing Federal Tax Audits of Entities
Can Modifications Occur? When?
New IRS Procedures You Need to Know
What Does All This Mean?
Significant Case Law

December 30, 2018 in Conferences & CLE, Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)