Wills, Trusts & Estates Prof Blog

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

Tuesday, May 21, 2019

Which Retirement Account Comes First, the 401(k) or the IRA?

RetirementThe average client who is not familiar with the detailed rules concerning the funding of 401(k)s and IRAs may believe that they are interchangeable. The Internal Revenue Service imposes restrictions on which clients are eligible to fund various types of accounts, and the rules vary both the plan contribution limits and the benefits associated with funding.

This year, eligible clients can contribute up to $6,000 to their IRA (an additional $1,000 for those 50 or older) and $19,000 to their 401(k) (with an additional $6,000 catch-up option). Then things can get a bit confusing. The “active participant” rules limit IRA contributions for taxpayers who have contributed to a 401(k) to those clients whose income has not exceeded certain thresholds. In 2019, IRA contributions are phased out for single taxpayers with modified adjusted gross income of between $64,000 and $74,000 and for joint returns between $103,000 to $123,000. If married and one spouse is an active participant, the threshold increase to between $193,000 and $203,000 for the other spouse.

Which account should be funded first? If an employer provides a matching 401(k) contribution, this should be thoroughly exploited to take advantage of the match. After that, many clients will consider diversifying between types of accounts to take advantage of a Roth feature, whether it be a Roth 401(k) option or Roth IRA, to provide for tax-free income during retirement.

Looking at the bigger picture and examining all relevant issues will serve to increase the odds that the client will maximize limited retirement savings dollars over the long-term.

See William H. Byrnes and Robert Bloink, Which Retirement Account Comes First, the 401(k) or the IRA?, Think Advisor, May 1, 2019.

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

May 21, 2019 in Current Affairs, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Friday, May 17, 2019

CLE on Estate Planning: New Laws That Make Old Tools Obsolete

CLEThe National Business Institute is holding a teleconference entitled, Estate Planning: New Laws That Make Old Tools Obsolete, on Friday, June 7, 2019, from 10:00 AM to 11:30 AM Central. Provided below is a description of the event.

Program Description

Stay on the Cutting Edge of Your Practice

This timely update will review the latest changes in the rules and will offer new tools to adapt to the new regulatory environment. Make certain your clients get the most up-to-date representation - register today!

  • Get an incisive summary of the tax changes and their implications for existing planning tools.
  • Learn which deductions remain and how to obtain them.
  • Identify planning approaches that no longer help your clients.
  • Gain practical pointers for fixing old trusts.

Who Should Attend

This legal update is designed for attorneys. It will also benefit accountants and CPAs, trust and tax professionals, and paralegals.

Course Content

  • Leveraging and Reporting the Step Up in Basis (Recent IRS Guidance)
  • QPRT Replacements
  • Obsolete Small-to-Medium Size Estate Tools and How to Update Them
  • The Sky High Estate/Gift/GST Tax Exemption and the New Approaches it Dictates
  • Old Large Estate Techniques That No Longer Work and What to Replace Them With
  • Charitable Giving after TCJA
  • Using the QBI Deduction: New Opportunities
  • Fixing Other Old Trusts
  • What if? . . . How the Potential Clawback of the New Rules Affects Client Advice

May 17, 2019 in Conferences & CLE, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Being Rich in America Depends on Where You Live

DenverA large influencer on how to answer the question of "How much money does it take to be considered wealthy?" is where the person asking the question resides. Being wealthy in Denver does not mean nearly the same thing as being wealthy in San Francisco, or in New York City for that matter. To be rich in the San Francisco Bay Area, a person needs to be worth $4 million, but if you ask baby boomers rather than the Average Joe, the number jumps to $5.1 million, according to Charles Schwab’s Modern Wealth Survey.

Almost everyone has heard that housing in San Francisco is hard to come by, and even then it is notoriously expensive. A ranking by housing website Trulia of the 100 largest metro areas found that, in late 2018, 81% of homes in the metro San Francisco area were worth $1 million or more. Across the entire country, only 3.6% homes were worth that much. Trulia reported that the percentage of homes worth $1 million or more in New York City and Washington, D.C. were 10.3% and 4.9%, respectively, far below that of the Bay Area.

Denver, far away from both coasts, had the lowest average dollar figure for what it would take to be thought of as wealthy, coming in at $2 million. 75% of people surveyed in Denver said that feeling personally wealthy is more about how they live their lives than about a particular dollar amount.

Better to be rich in Denver than average in San Francisco.

See Suzanne Woolley, Being Rich in America Depends on Where You Live, Financial Advisor, May 15, 2019.

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

May 17, 2019 in Current Affairs, Estate Planning - Generally, Humor, Income Tax | Permalink | Comments (0)

Thursday, May 16, 2019

CLE on The LLC Charging Order - The Quiet Shield of LLC Asset Protection

CLEThe National Business Institute is holding a webinar entitled, The LLC Charging Order - The Quiet Shield of LLC Asset Protection, on Tuesday, May 21, 2019, from 1:00 PM - 4:15 PM Central. Provided below is a description of the event.

Program Description

Protect LLC Ownership and Management

Your client's LLC ownership is an asset. Do you know how to protect that asset should your client get sued for something unrelated to the business? Can you safeguard your client's future by putting in place provisions that effectively control management rights? Our experienced faculty will discuss how to properly use LLC charging orders and pick-your-partner provisions so you can protect members' ownership interests. Register today!

  • What is an LLC charging order and what does it do? Find out!
  • Review key charging order provisions and identify if they apply to single-member LLCs.
  • Learn about charging order benefits and protections, like ownership integrity and management control.
  • Identify key charging order limitations.
  • Learn about LLC responses to charging orders.

Who Should Attend

This essential course is designed for attorneys. It may also benefit accountants and presidents/vice presidents.

Course Content

  • What is an LLC Charging Order and What Does it Do?
  • Charging Order Limitations
  • The 3 Types of Charging Order States in Detail
  • Charging Order Benefits
  • Using Charging Order Laws, Rules and Regulations to Your Advantage
  • Charging Order Protection
  • Creditor Responses
  • LLC Responses to Charging Orders

May 16, 2019 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Income Tax, Trusts | Permalink | Comments (0)

Tuesday, May 14, 2019

Bay Area has Third Largest Billionaire Population in the World

SfbayAccording to Wealth-X, a New York-based data analyst service that specializes in the super wealthy that released their annual billionaire census last week, San Francisco remains the city with the third largest billionaire population worldwide. 705 billionaires live in the U.S. (and 2,604 worldwide), with 75 live in San Francisco, up from 74 last year. The report referred to San Francisco as the entire bay area and not just the city proper.

The two above the bay area are New York City with 105 and Hong Kong with 87, down from 93 last year but not enough of a decrease to drop it out of second place. The report claims that the number of billionaires and their share of global wealth declined around the world in 2018.

The Brookings Institute reports that the Bay Area had the third-largest income gap in the county in 2016, with the region’s wealthiest households making 11 times that of those at the lowest level. Though it is not yet on the ballot, there has been a proposition mentioned that would increase the city’s corporate tax on “stock-based compensation" from .38% to 1.5%.

See Adam Brinklow, Bay Area has Third Largest Billionaire Population in the World, SF Curbed, May 13, 2019.

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

May 14, 2019 in Current Affairs, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Sunday, May 12, 2019

CLE on Medicaid Update 2019: Knowledgeably Advise Clients on the New Medicaid Changes

CLEThe National Business Institute is holding a seminar entitled, Medicaid Update 2019:Knowledgeably Advise Clients on the New Medicaid Changes, on Thursday, June 6, 2019, from 9:00 AM to 4:30 PM at the Illinois Business & Industry Services in Naperville, Illinois. Provided below is a description of the event.

Program Description

Knowledgeably Advise Clients on the New Medicaid Changes

Do you have the most current information relating to the impact of the new Medicaid changes? Are you confident in your ability to advise your clients due to these changes? Join us at this seminar to not just learn what changes have been made, but also gain insight into how the changes will affect your clients. Get yourself up to speed - enroll today!

  • Gain valuable insight into Medicare Part A through D so you can help clients ensure that hospital services, medications and medical visits are covered.
  • Help clients make smart financial planning decisions with a solid understanding of the new framework.
  • Avoid precedence conflicts by analyzing the new federal reforms versus your state's Medicaid policies.
  • Review the possible financial outcomes and get tips for helping with planning decisions in light of the Medicaid changes.
  • Guide clients through the Medicaid qualification process by knowing what's involved.
  • Translate the recent Medicaid reforms into the day-to-day practice skills you'll need to advise your clients.
  • Understand limitations on Medicare, long-term insurance and HMO coverage so your clients can plan for uncovered expenses.

Who Should Attend

This basic level seminar is designed for those who need to stay current on the latest in Medicaid law and practice, including:

  • Attorneys
  • Accountants
  • Insurance Professionals
  • Nursing Home Administrators
  • Paralegals

Course Content

  • State and Federal Medicaid Laws Update
  • Qualifying Clients for Medicaid and Medicare Benefits
  • Planning Tips and Traps
  • The Medicaid Application and Appeals Process
  • Understanding Medicare Parts A Through D, Veterans' Benefits and the Impact on Medicaid Benefits
  • Limitations on Medicare, Long-Term Insurance and HMO Coverage
  • Medicaid Estate Recovery

May 12, 2019 in Conferences & CLE, Current Affairs, Disability Planning - Health Care, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Thursday, May 9, 2019

Article on The Supreme Court, Due Process and State Income Taxation of Trusts

ScotusBridget J. Crawford & Michelle S. Simon recently published an Article entitled, The Supreme Court, Due Process and State Income Taxation of Trusts, Wills, Trusts, & Estates Law eJournal (2019). Provided below is an abstract of the Article.

What are the constitutional limits on a state’s power to tax a trust with no connection to the state, other than the accident that a beneficiary lives there? The Supreme Court of the United States will take up this question this term in the context of North Carolina v. Kimberley Rice Kaestner 1992 Family Trust. The case involves North Carolina’s income taxation of a trust with a contingent beneficiary, meaning someone who is eligible, but not certain, to receive a distribution or benefit from the trust, who resides in that State. Part I of this Essay explains the background of Kaestner Trust and frames the constitutional questions that will be before the Court at oral arguments on April 16, 2019. Part II examines how and why due process applies in the state income taxation context, with a particular emphasis on how familiar concepts of general and specific jurisdiction apply uneasily to donative trusts. Part III articulates the reasons that the Court should hold that a State has no constitutional authority to impose a tax on trust income where the trust’s only connection with the forum State is the residence of a contingent beneficiary. Kaestner Trust is the most important due process case involving trusts that the Court has decided in over sixty years; it bears directly on the fundamental meaning of due process.

May 9, 2019 in Articles, Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Income Tax, New Cases, Trusts | Permalink | Comments (1)

Monday, May 6, 2019

Aretha Franklin's Estate to Sell Late Singer's Property to Help Pay Off her Remaining $5.3 Million Tax Debt

ArethaThe estate of the Aretha Franklin, who passed away this last August from pancreatic cancer, has petitioned the court to sell a vacant block of land in Bloomfield Hills, Michigan to help pay off the singer's tax debt of $5.3 million. The land, as well as a house being built on the plot, will be placed on the market for $1.4 million.

It was also revealed last month that Franklin reported a missing check of $178,000 to Bloomfield Township police back in June 2018. The investigation of the theft remains open, and has the possibility of adding more animosity among her family and her estate. The police tracked down the check and spoke with the teller who had endorsed it at the bank, but they did not release any further details of their relationship with the singer.

The diva's estate attorney, David Bennett, claimed that she "always paid her debts" but she "did not immediately cash checks." He said in December that "She had a lot of (pay) checks lying around that she had never cashed. I had to have some of them reissued because they were so old. I don't know why she didn't cash them, but it seems that the IRS figured some of it as undeclared income and are going after it."

See Annita Katee, Aretha Franklin's Estate to Sell Late Singer's Property to Help Pay Off her Remaining $5.3 Million Tax Debt, Daily Mail, May 4, 2019.

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

May 6, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Income Tax, Intestate Succession, Music, New Cases, Trusts, Wills | Permalink | Comments (0)

Saturday, May 4, 2019

Memo on The Secure Act (HR 1994) and the Stretch Payment Rule Changes as it Relates to IRA Account Owners

ScalesSeymour Goldberg recently drafted a Memo entitled, The Secure Act (HR 1994) and the Stretch Payment Rule Changes as it Relates to IRA Account Owners, explaining three shortfalls of the drafted Act. He suggests that for the first issue that it be amended, and for the other two issues that grandfather clauses be inserted to waive liability for trustees of IRA trusts created prior to the new legislation.

The first issue mentioned is that HR 1994 has no provision providing for a minor who is not a child of the IRA owner who has not reached the age of majority under the general rule (cut off rule).  This means that if an IRA owner names their grandchild or other relative that is not their own child as beneficiary, and that child is still a minor 10 years after the IRA owner's death, they are forced to receive the IRA disbursement. Because of the windfall, many jurisdictions would require the hassle of setting up a guardianship for the minor to receive the funds, pay the income taxes, and everything else that this entails. Though this can be avoided if the IRA custodial agreement rules provide that payments can be made to a Custodian under the Uniform Transfers to Minors Act or a parent of the minor, there is no guarantee the IRA document will contain this provision.

The second issue deal with IRA trusts named as beneficiaries of the IRA, and the general cut off rule in the new HR 1994. The new legislation requires payment to be made to the IRA trust beneficiary at age 50 under the general cut off rule, but many IRA trusts have named other ages for vestment, including over the lifetime of the beneficiary. A violation of the general cut off rule would then trigger a 50% penalty on the shortfall amount of the required minimum distribution that is mandated under the new legislation. Yet the trustee is now violating the terms of the IRA trust. The most efficient fix would be to allow existing IRA trusts drafted and executed prior to the legislation be exempt from the new general cut off rule.

For more information, you can read the memo in its entirety here.

May 4, 2019 in Current Affairs, Elder Law, Estate Administration, Estate Planning - Generally, Income Tax, New Legislation, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Monday, April 29, 2019

Article on Is the Taxpayer Bill of Rights Enforceable?

TaxcalcLeandra Lederman recently published an Article entitled, Is the Taxpayer Bill of Rights Enforceable?, Tax Law: Tax Law & Policy eJournal (2019). Provided below is an abstract of the Article.

In 2016, Congress enacted a statutory Taxpayer Bill of Rights containing a list of ten rights but lacking an explicit remedy or enforcement mechanism. Are the rights listed therefore merely aspirational, or are some or all of them enforceable? It is worth noting that the statute does not say that these rights are unenforceable. Recently, taxpayers such as Facebook have begun to demand remedies for alleged violations of the rights listed in the statute, such as “the right to appeal a decision of the Internal Revenue Service in an independent forum.” This Essay argues that not only does the statutory text not provide a private right of action, U.S. Supreme Court case law does not permit such a right to be inferred. The Essay further argues that the history of the statute, which was largely the initiative of the National Taxpayer Advocate, supports the conclusion that there is no private right of action to enforce the statute. Rather, as the statute states, the Commissioner of the Internal Revenue Service is charged with ensuring that the listed taxpayer rights are protected.

April 29, 2019 in Articles, Current Events, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)