Wills, Trusts & Estates Prof Blog

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

Tuesday, March 9, 2021

Sen. Elizabeth Warren introduces "ultra-millionaire" wealth tax bill

TaxSenator Elizabeth Warren introduced a bill in the senate that looks to impose a new tax on the assets of "America's wealthiest individuals." 

This plan is very similar to a proposal that was the a big talking point of Warren's campaign when she ran for president in 2020. Warren's want of a tax increase on millionaires and billionaires in the U.S. is not new. 

The plan would place a 2% tax on those with a net worth between $50 million and $1 billion. Anyone with a net worth over $1 billion would be subject to a 3% tax. Anyone with a networth below $50 million would be safe from the tax. 

According to the tax bill's sponsors, the tax would raise $2.75 trillion in tax revenue over a ten-year period. 

Warren claimed, "The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the COVID crisis began."  Warren also stated, "A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations."

See Ursula Perano, Sen. Elizabeth Warren introduces "ultra-millionaire" wealth tax bill, Axios, March 1, 2021. 

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

March 9, 2021 in Current Events, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

Wednesday, February 24, 2021

IRS Rolls Out Online Option For Submitting Authorization Forms

TaxThe Internal Revenue Service (IRS) has released a new online option that will allow tax professionals to electronically submit authorization forms. 

The two forms covered under the new option are "Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization. These forms allow taxpayers to authorize the IRS to disclose their tax information to third parties, such as, tax professionals." 

The Form 2848 allows taxpayers to authorize eligible individuals to speak to the IRS on their behalf and also allows that person to receive related confidential tax information. 

The Form 8821 isn't as useful because it only allows the appointed representative to inspect or receive confidential information verbally or in writing "for the type of tax and the years or periods you list on the form." This form does not allow anyone to speak on your behalf. 

You can use the new options by creating a Secure Access Account and is fairly simple and quick to set up. 

See Kelly Phillips Erb, IRS Rolls Out Online Option For Submitting Authorization Forms, Forbes, January 25, 2021. 

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention. 

February 24, 2021 in Current Events, Estate Planning - Generally, Income Tax, New Legislation | Permalink | Comments (0)

Friday, February 5, 2021

Biden Wants To Replace IRA And 401(k) Tax Deductions With Tax Credits

Wealth taxThe Biden Administration has proposed a plan that would “change the tax structure for all ERISA plans and IRAs,” Busch said during the virtual event. “Instead of giving investors a tax deduction, they’re talking about changing it to a tax credit. This may change the dynamics of IRAs and ERISA and 401(k) plans if they get this through, which is a part of what Treasury Secretary nominee Janet Yellen is working on over the next 100 days.”

The plan would replace the tax deduction for IRA and 401(k) contributions with a tax credit. 

According to Busch, doing away with these tax deductions could have a severe impact on the way Middle America saves for retirement. 

Another change that has been popular in conversation is the proposed corporate alternative minimum tax that would get rid of tax cuts for anyone that makes more than $400,000 a year.

President Biden proposed a $1.9 trillion package, but recently met with a group of Senate Republicans to discuss a "skinny stimulus" plan which would reduce the plan to $600 million. 

Busch further stated,

“Keep in mind how much stimulus has already been released,” he added. “Some $10.4 trillion has been allocated to the economy. If you are wondering why companies and stocks have recovered, this is why. And there is still $4 trillion that hasn’t made its way into the economy yet.”

It is important to keep these proposed changes in mind when considering your estate and retirement plans, as things could change soon. 

See Tracey Longo, Biden Wants To Replace IRA And 401(k) Tax Deductions With Tax Credits, Financial Advisor, February 1, 2021. 

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

February 5, 2021 in Estate Planning - Generally, Estate Tax, Income Tax | Permalink | Comments (0)

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)