Wills, Trusts & Estates Prof Blog

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

Tuesday, October 27, 2020

Potential Estate Planning Implications of 2020 Election Results

EstateplanningAs the presidential election approaches, there has been a lot of discussion surrounding the potential tax law changes. Although nothing is for certain, there are many things that certainly could happen, especially if Joe Biden is elected president and the Democrats gain the majority of both the Senate and the House. 

Potential Tax Law Changes include:

  • Lower Transfer Tax Exemptions
  • Higher Transfer Tax Rates
  • No Income Tax Basis Adjustment at Death
  • Taxation of Capital Gains at Ordinary Income Tax Rates
  • Elimination of Other Popular Estate Planning Tools

 

As the potential tax changes loom about, there are few Year-End Planning Considerations that you should take into account before it is too late:

  • Use "bonus" Exemptions Before They Expire
  • Use Popular Planning Tools Before They Are Eliminated
  • Take Advantage of Low Interest Rates and Depressed Asset Values 
  • Build In Potential Access to Transferred Funds
  • Consider Accelerating Capital Gains
  • Do Not Wait Until December 31st 

As everyone' situation is unique, some of these considerations may not be worthy of your consideration, but it is always better to consider potential options before the options no longer exist. 

See Potential Estate Planning Implications of 2020 Election Results, Winstead PC, October 19, 2020. 

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

October 27, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)

Friday, October 23, 2020

IRS announces 2021 Tax Counseling for the Elderly and Volunteer Income Tax Assistance Program Grants

The IRS has "awarded over $36 million in Tax Counseling for the Elderly and Volunteer Income Tax Assistance grants to organizations that provide free federal tax return preparation."

The IRS awards these grants to help those "who perform their important service." The TCE Program provides tax counseling and return preparation nationwide to individuals 60 or older. The VITA assists underserved communities. Both of these programs are extremely important and make a huge difference in the communities that need tax assistance.

The IRS partners with a variety of organizations to help develop VITA and TCE programs. These partners consist of non-profit agencies, faith-based organizations, community centers and large employers. The IRS will provide tax law training, certification and oversight to help these organizations prepare accurate returns. 

See IRS announces 2021 Tax Counseling for the Elderly and Volunteer Income Tax Assistance Program Grants, IRS Newswire, October 21, 2020.

Special thanks to Lewis Saret (Attorney, Washington, D.C.) for bringing this article to my attention.  

October 23, 2020 in Current Events, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Wednesday, October 21, 2020

Tax Planning by Accelerating Gain Recognition into 2020

TaxDemocratic Presidential nominee Joe Biden has recently released a tax plan which may significantly increase the capital gain tax. The plan includes a proposal, which if accepted, "would eliminate the preferred 20% rate on long-term capital gain and qualified dividends for taxpayers with more than $1 million in taxable income."

The Biden plan would subject this type of income to tax at regular tax rates, "with the highest bracket ordinary income tax rate returning to the 39.6% rate in effect prior to the Tax Cuts and Jobs Act of 2017."

"If this proposal is adopted wholesale, it would mean that capital gains subject to a 20% tax rate if recognized in 2020, could be subject to nearly double that tax rate in 2021 or 2022 (or later)."

When tax rates increases, it is possible for a taxpayer to to save income tax by accelerating income tax gain and measuring the potential opportunity cost of paying tax early. 

"By paying tax earlier, the taxpayer will not have the investment returns from funds used to pay the tax because the dollars used to pay the tax are no longer available for investment."

Below are a few ways taxpayers can cause the recognition of gain if interested in accelerating the gain and paying the income tax in 2020:

  • For those taxpayers who own highly appreciated publicly-traded stock, the taxpayer can simply sell and then repurchase the securities. The “wash sale” rule of Section 1091, which generally disallows losses when a shareholder sells securities for a loss and repurchases the same or substantially identical stock or securities, does not apply to disallow recognized gains.

  • Taxpayers who make installment sales in 2020 may elect out of installment sale treatment (causing all of the gain to be recognized in 2020 as opposed to be deferred until the future).

    Taxpayers who sold a company and reported part of the purchase price as an installment sale in prior years can generally accelerate the recognition of the capital gain on the installment sale by either pledging the note as security for a bank loan (which generally accelerates immediate recognition up to the amount of loan proceeds), or by selling, gifting, or exchanging the note. For example, taxpayers may consider gifting or selling the notes to a non-grantor trust, which would cause the gain to be recognized.
     

  • For taxpayers with closely-held business interests, with expectations of selling such business interests in 2021 or 2022, there are a number of ways to recognize the gain at today’s 20% rate, thereby generating basis that can be used to offset gain against sale proceeds in the future (which such proceeds may be taxable at the 39.6% tax rate)

See Stephanie J. Derks & Jason J. Kohout, Tax Planning by Accelerating Gain Recognition into 2020, Foley & Lardner LLP, October 14, 2020. 

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

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

Friday, October 16, 2020

Final regs. outline trust and estate expenses still deductible under TCJA

The IRS issued final regulations "clarifying that certain expenses incurred by, and certain excess deductions upon the termination of, an estate or non grantor trust are not affected by the suspension of miscellaneous itemized deductions for tax years 2018 through 2025." 

Section 67(g), known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, disallows itemized deductions for any tax year beginning after December 31, 2017, and before January 1, 2026. Prior to the TCJA, itemized deductions were allowed so long as their aggregate amount exceeded 2% of adjusted gross income. 

Section 67(e) discusses the computation of the adjusted gross income in regard to an estate or trust and exceptions that may arise in the computations. 

The IRS and Treasury recognized that excess deductions may consist of "(1) deductions allowable in arriving at AGI; (2) non-miscellaneous itemized deductions; and (3) miscellaneous itemized deductions."

Section 67(g) only suspends the third type of deduction. "Consequently, the proposed and final regulations provide rules for trustees to determine for a terminating estate or trust the character and amount of each deduction type and, therefore, their respective allocations to, and applicable limitations upon, the succeeding beneficiaries.:

See Paul Bonner, Final regs. outline trust and estate expenses still deductible under TCJA, The Tax Adviser, September 22, 2020. 

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

October 16, 2020 in Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts | Permalink | Comments (0)

Tuesday, October 13, 2020

Biden tax hike plan causes wealthy Americans to panic over estate planning strategies

EstateAs the Presidential Election approaches, wealthy Americans are updating their estate plans. There is a strong concern that a Joe Biden victory "could upend current tax law." 

The Tax Cuts and Jobs Act raised the exemption amount to $11.58 million for individuals and $23.16 million for married couples. However, Biden's proposal would undo this change and would lower the exemption amount before its planned demise on December 31, 2020. "Biden would also do away with step-up in basis, which means unrealized capital gains would be taxed at death."

Understandably, wealthy Americans are concerned with this threat as they would not be able to move assets as easily without triggering the tax. These concerns are pushing wealthy Americans to take advantage of the current tax rates and exemption amounts related to gifts and other transfers. 

Geoffrey Weinstein, special counsel in the Tax, Trusts & Estates Department of Cole Schotz stated, "If Biden were to win the election, a change in tax policy could be retroactive to the beginning of 2021, which is why some individuals are seeking to have these changes in place by year’s end." 

It may be time for you to take a look at your estate plan or if you are a professional, to alert your clients about the chances of the imminent doom that tax law faces. 

See Brittany De Lea,  Biden tax hike plan causes wealthy Americans to panic over estate planning strategies, Fox News, October 12, 2020.

October 13, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Saturday, October 10, 2020

Estate Planning Tips as We Emerge from a Pandemic and Head into a Presidential Election

EstateThis year has been full of surprises, some of them good, but many of them bad, even heartbreaking. 2020 has been quite unusual, making it the perfect time to think about estate planning.

Here are tips to consider when working through your estate plan in the last few months of 2020:

  • Planning with Continued Low Interest Rates 

You may be able to take advantage of Grantor Retained Annuity Trusts (GRATs) or Charitable Lead Annuity Trusts (CLATs) to take advantage of the historically low interest rates. 

  • Lower Values in Commercial Real Estate 

Now is an ideal time to gift interests in property assets, which can be used to take advantage of the current tax exemption.

  • Checking the Existing Basic Estate Plan 

Now is the time to go back over your estate plan to make sure your wishes are adequately reflected. You should review your testamentary provisions and should consider testamentary tax strategies that take the upcoming Presidential Election into account. 

  • Check Advance Directives and Durable Powers of Attorney

Given the uncertainty due to the pandemic, now is a good time to consider an advance directive for health care and to designate a durable power of attorney.

  • Checking Existing Estate Planning Strategies

Review your estate planning strategies to ensure that they are still effective. Given the uncertainty and change that this year has produced, your strategies may need updating.

  • Renegotiate Family Loans 

The provisions in your loans or other documents many no longer be desirable or there may now be batter strategy for you. You may be able to renegotiate and amend the provisions of these documents to better align with your strategy.

  • Using (or Losing) AEA before 2021 (or 2026).

The $11.58M Tax exemption is expected eclipse at the start of 2026, however, this may happen sooner if Former VP Joe Biden is elected. Therefore, if you do not take advantage of the exemption, you may lose it forever. 

  • Don't Forget about the GST: Are Existing Trusts Being Optimized
  • Strategize about Business Succession and Long-Range Planning

The lockdown that began in March not only locked down the economy, "it created a unique environment for business owners to stop and reflect about their enterprises and the future." It may be time to consider business succession and create a favorable strategy to plan for the future.

  • Consider State Estate and Income Tax Effects on Your Domicile 

See Joseph P. Scorese, Estate Planning Tips as We Emerge from a Pandemic and Head into a Presidential Election, Sills Cummis & Gross P.C., October 8, 2020. 

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

October 10, 2020 in Current Affairs, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Thursday, October 8, 2020

Estate Planning and Business Transition Issues Not to Overlook Before the Year-End

PlanAlthough 2020 has seemed to drag on for an eternity, it is closely coming to an end. This means, it is time to do a review and possibly an update of your estate plan. There are a few things that you should take into consideration as you are looking towards making changes to your estate plan. 

Discussed below are a few considerations that you may want to keep in mind as you take on this estate planning journey. 

Year-End Gift Giving

Federal gift tax exemptions are at an all-time high sitting at $11.58M per person. As the end of the year is approaching, and a presidential election coming up next month, this is a "use-it-or-lose-it type of exemption. Potential effective areas to take advantage of this exemption are:

  • Marketable securities
  • Business interests
  • Charitable gifts
  • Appreciated long-term capital assets

Estate Planning

Estate and gift tax planning rollbacks may be an area which you should apply more focus. Come 2026, the exemption is set to roll back making the exemption amount $5M. If taxpayers fail to take advantage of the exemption before December 31, 2020, they might lose the exemption. This is why it is a great time to consider making a lifetime gift. 

Year-End Charitable Giving

"The 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) encourages additional charitable giving in 2020." The Act increases the "charitable deduction adjusted income percentage from 60% to 100% for itemizing taxpayers." 

Year-End Planning for Income Tax Issues

Future tax situations are up in the air and time is running out for taxpayers to discuss with their tax and estate planning professionals. Possible changes include:

  • Individual income tax rates—state and federal
  • Carry back losses
  • Basis or cost
  • C corporation losses
  • 1031 Exchanges
  • Capital gain rates
  • Estate and gift tax exemption amounts
  • Suspension of required minimum distributions for qualified retirement plan accounts

Refer to the article cited below for a in depth discussion of valuations and how valuation issues may come into play.

See Carmen Calzacorta, Matthew Bisturis, Dan Eller, Alicia Lowe, June Wiyrick Flores, Samantha MacBeth, & Thomas Tongue, Estate Planning and Business Transition Issues Not to Overlook Before the Year-End, Schwabe, Williamson, & Wyatt, October 6, 2020. 

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

October 8, 2020 in Current Affairs, Current Events, Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0)

Tuesday, October 6, 2020

Top Ten Estate Planning Recommendations before the End of 2020

EstateThe end of 2020 is quickly approaching and due to the adverse impact of the coronavirus and the election coming up in about a month, it may be time to look over and update your estate plan.

Below are the top ten estate planning recommendations to consider before the end of 2020:

  1. Exemptions may go back down
    1. If President Trump is not reelected, the $11.58M per person tax exemption will likely go down before the expected year of 2026. And even if President Trump is reelected, the exemption is expected to top back down at the end of 2025. 
    2. It may be smart to take advantage of the tax exemption before the end of 2020 as you will be safe from a "claw back"
  2. Discounts, GRATs, Grantor Trusts, etc. may go away
    1. Similar to the tax exemptions, if Joe Biden is elected, there will likely be a vast change to this area of estate planning. 
  3. Married Couples can Have their Cake and Eat it too
    1. By taking advantage of certain trusts, you can take advantage of the gift tax exemption while not losing access to your assets. 
  4. A Single Individual can also Have his or her Cake and Eat it too
    1. In certain jurisdictions, you still may be able to use certain trusts to "gift" into in order to take advantage of the exemption.
  5. Interest Rates are at an all-time low
  6. Values of some Asset Classes are Depressed
    1. Particularly real estate
  7. Migration to Florida and other low or no Income Tax States 
  8. Capital Gains Rates could Double
  9. Hold off on Charitable Gifts
  10. Be Smart and Sensible 

See Albert W. Gortz, David Pratt, Mitchell M. Gaswirth, Andrew M. Katzenstein, & NAthaniel W. Birdsall, Top Ten Estate Planning Recommendations before the End of 2020, National Law Review, October 6, 2020.

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

October 6, 2020 in Current Events, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts, Wills | Permalink | Comments (0)

Monday, October 5, 2020

Year-End Planning Amid a Year of Uncertainty

EstateDue to the coronavirus, this year will stand out for a very long time due to the "uncertainty and unending personal financial planning." As we are approaching the end of the year, there are some things that you should consider as there may be potential tax law changes. 

As of now, the estate, gift, and generation-skipping transfer tax exemption is at an all-time high of $11.58M per person. As this exemption is expected to "sunset" in late December of 2025 (and possibly earlier), now is a good time to consider how to take advantage of the exemption. The IRS has stated that if you take advantage of this exemption now, it will not be "clawed back" even if the exemption is lower in the year that you die. 

Another thing to pay attention to is the individual income tax, capital gains, qualified business income deduction,  and maximize tax-advantaged accounts. These are great things to look at in regard to income tax planning. 

As the end of the year approaches, along with a presidential election, it is not only recommended to consider updating your estate plan, but may be necessary as the opportunities that exist now may not be available next year. 

See Alvina H. Lo, Year-End Planning Amid a Year of Uncertainty, Bloomberg Tax, September 25, 2020. 

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

October 5, 2020 in Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)

Sunday, October 4, 2020

Biden’s Tax Proposals and Estate Planning

Joe Biden has given little information about his plans in regard to estate planning and tax treatment, but he has provided limited information on the topic. 

It appears that Joe Biden does support "raising estate taxes and changing the taxation of capital assets upon death."

As of now, the tax exemption is $11.58M per person and $23.16M per married couple. These rates are expected to stay until the end of 2025. However, if Joe Biden wins the presidential election and if the Democrats win control of both the Senate and the House, the exemption limit will likely be reduced sooner.

Biden has also hinted that he wishes to "change the treatment of capital gains at death." Biden has signaled that he wants to reintroduce an Obama administration proposal that would impose a "mark-to-market tax appreciated capital assets upon the death of the owner." 

See Amy E. Heller, Andrew D. O'Gwynn, Biden’s Tax Proposals and Estate Planning, Skadden, September 30, 2020. 

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

October 4, 2020 in Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax | Permalink | Comments (0)