Wills, Trusts & Estates Prof Blog

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

Thursday, June 6, 2019

Should out-of-state trusts be taxed?

The following excerpt is from Out-of-State Trusts Shouldn’t Be Taxed: Bloink & Byrnes Go Thumb to Thumb, thinkadvisor.com, May 8, 2019, in which Professors Robert Bloink and William Byrnes, give their opposing  opinions as to what the SCOTUS should decide:

The US Supreme Court in April agreed to resolve a conflict stemming from a case involving whether a state can constitutionally tax a trust when a trust beneficiary resided within the state, but did not receive any income from the trust.  In the case of North Carolina Department of Revenue v. Kimberly Rice Kaestner, the North Carolina Supreme Court ruled for the beneficiary in that case, finding that the North Carolina state-level tax on the New York-based trust was unconstitutional because it violated the due process clause of the U.S. constitution.

Currently, 11 states tax trusts based on the residency of trust beneficiaries—although nearly all states tax trust income once the beneficiary actually receives that income.  Courts in various states have disagreed over whether the residency-based tax is constitutional.

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

June 6, 2019 in Income Tax, Trusts | Permalink | Comments (0)

Wednesday, May 29, 2019

Article on Wayfair: Its Implications and Missed Opportunities

WayfairRichard D. Pomp recently published an Article entitled, Wayfair: Its Implications and Missed Opportunities, Tax Law: Tax Law & Policy eJournal (2019). Provided below is an abstract of the Article.

This Article focuses on the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc., its implications, and the Court’s missed opportunities. After an overview of the Wayfair case in Part I, Part II argues that the term “substantial nexus,” mentioned only once, and for the first time in a state tax case, in Complete Auto, should be given no weight. The Court in Quill latched onto the flawed term to bifurcate Commerce Clause and Due Process Clause nexus. This bifurcation served the Court’s political agenda by removing any due process obstacles to Congress’s intervention while protecting the reliance interests of the remote vendors. Wayfair should have discarded the term and returned the concept of nexus to its roots in the Due Process Clause, but it did not.

Part III contends that although Wayfair dealt only with the sales tax, its implications extend widely. A taxpayer can no longer make a credible argument that physical presence is a prerequisite to satisfy nexus, even in the context of taxes other than sales and use taxes.

Part IV explains that Congress can always overrule Wayfair and may now have the political impetus to do so. It is at least more likely that Congress will act post-Wayfair, where it can be viewed as protecting vendors, than it was pre-Wayfair, where Congress might have been viewed (incorrectly) as imposing a new tax on Internet purchases.

Part V urges states not to eliminate their pre-Wayfair techniques for sidestepping Quill, such as click-through nexus and Colorado-style reporting. This is because Congress might reimpose physical presence as the nexus standard. Additionally, as states seem not to be applying Wayfair retroactively, there will be open audit years when physical presence will remain the relevant nexus standard. Thus, pre-Wayfair techniques will still be relevant and should be held in reserve to draw on when necessary.

Part VI allays fears about the possibilities that offshore vendors will either refuse to collect the market state’s use tax or collect the tax and fail to remit it.

Part VII briefly summarizes state reactions to Wayfair and explains why there will not be a rush to adopt the Streamlined Sales Tax Agreement. This Part also offers advice about how to draft a post-Wayfair statute, suggesting that a transaction threshold as an alternative to a sales threshold is not particularly useful. States should instead consider requiring vendors to satisfy both a transaction and a sales threshold. But if a state wishes to only use one threshold, it should be sales and not transactions. Furthermore, this Part reiterates that states should retain their existing rules on physical presence, which may be needed during open audit years or if Congress overrules Wayfair. Eliminating these rules would gain nothing and could even result in lost revenue in some circumstances.

Part VIII explores the Pike balancing test, which has played no significant role in state tax cases, but has been elevated by Wayfair into a key feature of Commerce Clause jurisprudence.

Finally, Part IX focuses on local sales and use taxes, predicting that this area will be the source of future litigation.

May 29, 2019 in Articles, Current Affairs, Estate Planning - Generally, Income Tax, New Cases | Permalink | Comments (0)

CLE on Skills Training for Estate Planners

CLEThe American Bar Association is holding a seminar entitled, Skills Training for Estate Planners, from Sunday, July 14 to Friday, July 19 at the South Carolina School of Law in Columbia, South Carolina. Provided below is a description of the event.

This is the ideal estate planning CLE program for both new and experienced lawyers. Young or transitioning lawyers new to the practice will receive a strong educational experience focused on the “how to” or estate planning in the program Fundamentals course; while more experienced lawyers will appreciate the opportunity to further expand their knowledge in the program’s Advanced Topics course. The outstanding facility includes experts in all aspects of estate planning and will cover a wide range of topics.

Fundamentals Program

Who Should Attend the Fundamentals Program?

New estate planners — both young attorneys new in the profession, and attorneys seeking to make a transition from another area of law. We recommend that attorneys have been practicing law for at least three years. Please note that this program is not open to law school graduates of 2019. Download the Fundamentals brochure.

Advanced Topics Program

Who Should Attend the Advanced Topics Program?

Attorneys experienced in estate planning seeking to increase their knowledge and skills within the practice. Attorneys who have completed the Fundamentals Program are encouraged to attend the Advanced Topics Program for more training. 

Benefits of Attending

  • An outstanding facility who share their insights and strategies on the most pressing issues estate planners currently face
  • An intensive classroom environment that encouraged interaction and integrates substance with practical skills instruction
  • Detailed course materials that serve as a valuable reference when you return to your office
    The opportunity to network with faculty and other participants from across the country at receptions, complementary breakfasts and lunches, as well as informally in the evenings
  • Between 24 – 54 hours of CLE credit depending on your state and the course chosen

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

May 29, 2019 in Conferences & CLE, Current Events, Estate Administration, Estate Planning - Generally, Income Tax, Trusts, Wills | Permalink | Comments (0)

Tuesday, May 28, 2019

Does Your Estate Plan Fall Prey to 3 Big Tax Issues?

3Richard (Dick”) Oshins, Esquire from Las Vegas, Nevada, identified what he believes are three of the more sinister tax blunders that affect many estate plans. Upon your annual estate and financial plan review, it would be prudent to determine if it is effected by these three issues.

  • Not fixing Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs)
    • These types of entities were often formed to hold family investment or business assets for one of or more reasons, such as valuation discounts for estate and gift tax purposes. Another common purpose was to exert control, to hold family investments and, even after transferring interest, still retain that control over the entity. Lastly, these entities can provide must desired asset protection. 
    • But too often owners neglect proper maintenance and formalities with these entities, such as commingling personal funds with company funds or not having a properly signed governing instrument.
  • Not swapping out on irrevocable trusts
    • Irrevocable trusts are often used to remove assets from an estate to save on taxes, for asset protection, etc. If the trust is structured as a grantor trust, the income derived from the trust is reported on the income return of the grantor and not the trust itself. A common way to create a grantor trust is to give the settlor the power to swap or substitute personal assets for trust assets of equivalent value.
  • No selection of trust situs
    • Does your home state provide a good environment for your trust? If the tax system is harsher than others, you may be able to "rent" a better jurisdiction to reach your goals and avoid state income tax. When planning any new trust, discuss with your estate planning attorney the pros and cons of which state to use for the trust.

See Martin Shenkman, Does Your Estate Plan Fall Prey to 3 Big Tax Issues?, Forbes, May 27, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) and Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

May 28, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (0)

Monday, May 27, 2019

Article on Policy Forum: Is Accelerated Depreciation Good or Misguided Tax Policy?

TaxesPhilip Bazel & Jack Mintz recently published an Article entitled, Policy Forum: Is Accelerated Depreciation Good or Misguided Tax Policy?, Tax Law: Tax Law & Policy eJournal (2019). Provided below is an abstract of the Article.

The authors examine the implications of Canada's response to the 2017 US tax reform. Canada's focus on accelerated tax depreciation will achieve lower marginal effective tax rates on capital for taxpaying companies, well below the US levels achieved with the Tax Cuts and Jobs Act that came into effect on January 1, 2018. By ignoring neutrality, the government offsets some of the potential gains by reducing the tax burden on capital, thereby failing to maximize efficiency gains from a better corporate tax system. Further, Canada's approach fails to respond to competitiveness effects of US reforms on corporate tax base erosion in Canada as companies shift profits to the United States. The low US tax rate on intangible income will draw certain functions to the United States. A more comprehensive approach to corporate tax reform, including some reduction in corporate income tax rates, would have been a preferable response.

May 27, 2019 in Articles, Current Affairs, Estate Planning - Generally, Income Tax | Permalink | Comments (0)

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)