Wills, Trusts & Estates Prof Blog

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

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)

Wednesday, December 2, 2020

2020-2021 TREASURY-IRS PRIORITY GUIDANCE PLAN

Estate planningOn November 17, 2020, the Treasury Department and the IRS released their Priority Guidance Plan for the 12 months from July 2020 through June 2021. 

The American College of Trust and Estate Counsel (ACTEC) posted an overview of what the Treasury and the IRS will focus on for the next seven months. 

Part 1 of the plan is titled "Implementation of Tax Cuts and Jobs Act (TCJA)" and contains 38 items. Of the 38 items, there are two in particular that will interest estate planners. 

Item 4 of Part 1 will have some focus on the deduction of estate and trust expenses. The item includes Notice 2018-61 which was originally published on July 30, 2018, which stated, "“the Treasury Department and the IRS intend to issue regulations clarifying that estates and non-grantor trusts may continue to deduct expenses described in section 67(e)(1)” despite the eight-year “suspension” of section 67(a) in the 2017 Tax Act by new section 67(g)." 

Item 33 of Part 1 provides "significant reinforcement for the proposition that the death of the grantor does not by itself cause the recognition of gain with respect to appreciated assets held in a grantor trust."

The Priority Guidance Plan also includes information on burden reduction, relief regarding GST exemption allocations and elections, and more general guidance. The ACTEC website also provides information on omissions from the Priority Guidance Plan. 

The aforementioned information and more is available in the source cited below. 

See 2020-2021 TREASURY-IRS PRIORITY GUIDANCE PLAN, The American College of Trust and Estate Counsel, November 30, 2020. 

December 2, 2020 in Current Events, Estate Planning - Generally, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Tuesday, December 1, 2020

Man who became a millionaire after living on $200 a month says these are the downsides of a windfall

LorenLoren Krytzer's life changed when he sold an old family heirloom: a Navajo blanket from the 1800s. Turns out the blanket was worth $1.5 million. 

Prior to selling the blanket, Loren was unemployed and survived off of monthly disability checks. Loren lost his leg in a terrible car accident that was nearly fatal. It is safe to say that the sale of the blanket saved Loren's life has he want from a little shack in California to a $250,000 home. 

However, Loren made it clear that windfalls do come with unexpected challenges like "tax hurdles and family drama." 

Loren stated that he is losing close to $10,000 a year in insurance and property taxes. Also, Loren's disability checks were cut off and with no source of income, he will have to move somewhere with a lower cost of living. 

Loren stated that him and his wife are planning on selling their house and moving to Idaho, where taxes are lower and living is more affordable. 

On top of the taxes, Loren stated that as soon as his family members found out about the windfall, they began asking for a cut of the money, creating a lot of anxiety for Loren. Loren's sister even threatened to sue him. 

Seems that Loren's family does not understand that even with the windfall, he is not rich and cannot just blow the money and buy his children whatever they want. 

Apart from buying a Dodge Challenger SRT8 from West Coast Customs and a new home, Loren said that he spent wisely and even invested part of the money. 

Loren says that although his life became easier after getting the money, he has not changed. 

“I firmly believe I’m here because years ago I turned my life around,” he says. “The things I’ve been through, I tell people it’s a strong faith and a strong mind. Without those things you’re not going to make it.”

See Zack Guzman, Man who became a millionaire after living on $200 a month says these are the downsides of a windfall, CNBC, November 30, 2020. 

Special thanks to David S. Luber (Florida Probate Attorney) for bringing this article to my attention.

December 1, 2020 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Individual Tax Planning Following the November 2020 Elections

TaxThe presidential election has passed and individual tax planning remains a touchy subject as there is a lot of uncertainty surrounding the topic. As of now, it is unclear what the remainder of this year holds, much less what the beginning of 2021 has in store. 

As of now, it appears that the Democrats will control the House of Representatives, it is unclear which party will control the U.S. Senate. Unfortunately, the uncertainty regarding the Senate will remain until the run-off for the two U.S. Senate seats in Georgia occurs in January 5, 2021. 

There has been a lot of talk about potential changes to tax policy under a Joe Biden presidency and if the Democrats end up in control of the House and the Senate, the changes are more than likely to occur. 

With this in mind, individuals are taking advantage of the current tax exemptions just in case they are gone in 2021. 

The potential changes would have an effect on taxes on Income, Capital Gains, and Estate taxes. 

If these changes worry you or you will simply just miss the current tax exemptions you have available to you, now is the time to get your affairs in order and take the necessary steps to utilize the exemptions. 

For strategies and tips to use to take advantage of tax exemptions, see the article cited below. 

See Mark J. Andres, Individual Tax Planning Following the November 2020 Elections, National Law Review, November 25, 2020. 

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

December 1, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Monday, November 30, 2020

2021 Inflation Adjustments of Interest to International Tax Practitioners

Estate planningThe IRS recently released its annual Revenue Procedure containing inflation-adjustments for 2021.

 Of interest to international tax and estate planning practitioners are the following:

  • Estate and Gift Tax Basic Exclusion Amount: $11,700,000
  • Gift Tax Annual Exclusion Amount: $15,000
  • Increased Annual Exclusion for Gifts to Non-U.S. Citizen Spouses: $159,000
  • Tax Liability Threshold for Covered Expatriate Status: $172,000
  • Gain Exclusion Amount for Covered Expatriates: $744,000
  • Foreign Earned Income Exclusion Amount: $108,700

 

"Practitioners should note that the estate and gift tax basic exclusion amount is only available to U.S. citizens and U.S. domiciliaries. Foreign individuals do not receive any exclusion amount for U.S. gift tax purposes (other than the annual exclusion amounts) and only receive a $60,000 exemption for U.S. estate tax purposes."

November 30, 2020 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

‘Wealth tax risks worsening defective CGT system’

Estate planning"The UK system of taxing capital is broken but introducing a wealth tax risks making the situation worse, a former top civil servant at HM Revenue & Customs said." 

Edward Troup, previously first permanent secretary at HMRC, suggested that MPs tackle the already existing defects of the wealth tax system before any further steps are taken.

“We have a lot of taxes on various aspects of capital . . . none of them work properly,” said Sir Edward on Wednesday, citing capital gains, inheritance and council taxes as examples. “It’s always better to try and fix what you’ve got than to pile something else on top of it.”

Sir Edward suggested that politicians shift their focus to considering whether the current wealth taxing system is working correctly.

Sir Edward also stated, “There is a real risk that we are looking at putting something new and difficult and probably pretty inefficient [a wealth tax] on top of some already non-working taxes.”

It appears that the debate surrounding new wealth taxes continues to intensify during the pandemic pushing the government to consider how to repair the damage.

See Emma Agyemang, Wealth tax risks worsening defective CGT system’, Financial Times (UK), November 19, 2020.

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

November 30, 2020 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

Sunday, November 29, 2020

Maximizing End-of-Year Charitable Giving

Estate planningThe holiday season is quickly approaching, which also means it is a popular time for charitable giving. Donors can be philanthropic in their charitable giving while also gaining tax advantages. 

One way donors can take advantage of these is to include a provision in your will or trust, which will provide a part of your estate to a charitable organization. Providing a gift to a charitable organization may allow your estate to receive an estate tax deduction. 

You can also gift securities through lifetime gifts. This method will allow the chosen charitable organization to receive the full value of stock and will allow you to take an income tax charitable deduction. 

You can also gift your IRA to a designated organization upon your death. This strategy requires you to file a beneficiary designation form with the IRA administrator. You can either gift the entire IRA or you can set a specific percentage for the organization to receive. The organization will not have to pay income taxes for withdrawals and will receive the full value of the gift. There is also another tax break for older donors that gift out of their IRA. 

See Eileen Y. Lee Berger, Maximizing End-of-Year Charitable Giving, Bowditch & Dewey, November 25, 2020. 

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

November 29, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)