Wills, Trusts & Estates Prof Blog

Spinning Straw into Gold: Modifying Irrevocable Trusts

Irrevocable trusts have been part of estate planning for years. They have been used for a variety of purposes, such as to remove assets from a person's estate in order to reduce taxes, to protect assets from creditors, and to provide management of assets for beneficiaries. Historically, these trusts could run for perhaps 100 years or so, but often terminated much earlier than that. More recently, many states have eliminated or modified their laws so as to allow trusts to run forever, or at least for periods that are, for all practical purposes, forever. In addition, creditor protection has become much more important to some persons given the litigious nature of our society. The larger generation-skipping tax exemption has also fueled an increased interest in keeping assets in trust to avoid future taxes. Thus, there are now many more trusts that will run for very long periods than used to be the case.

Many clients wish to have the benefits of an irrevocable trust but do not like the idea that the trust is actually irrevocable. Estate planners have also sought ways to modify trusts that are irrevocable as a result of changed circumstances or because the planner's client is the beneficiary who objects to the terms of the trust. In response to this, state laws have been evolving over time to permit changes to what were once instruments that could not be modified. These changes raise several issues, both legal and otherwise.

For fiduciaries, this brave new world can be a minefield, exposing the fiduciary to possible litigation for making, or perhaps for not making, a change that state law now permits.

See Sarah Change & Scott Bieber, Spinning Straw into Gold: Modifying Irrevocable Trusts, ThompsonCoburn.com, January 8, 2019.

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

Article on Happy New Year: Reconsidering the Tax Treatment of Alimony

Tyler Hardcastle & Margaret Ryznar recently published an Article entitled, Happy New Year: Reconsidering the Tax Treatment of Alimony, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article. 

The Tax Cuts and Jobs Act of 2017 has significant implications for the more than one million Americans divorcing each year. One such consequence taking effect in the New Year is the repeal of §§ 215 and 71, which allowed the deductibility of alimony payments by the payor and included them in the payee spouse’s income. However, these code provisions were good public policy for divorcing couples by incentivizing alimony, and their repeal should thus be reconsidered.

Article on Elder Law Issues and Recent Developments 2018

Elizabeth Ruth Carter recently published an Article entitled, Elder Law Issues and Recent Developments 2018, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article.

These CLE materials provide an overview of the recent developments in Elder Law that occurred between 2017-2018. Topics include legislative and jurisprudential developments in consumer protection, crimes against the elderly, mandate and interdiction, and medical law changes. Attention is also given to the Tax Cuts and Jobs Act.

How The Government Shutdown Affects Clients' Taxes

The 21st federal government shutdown since the modern federal budgeting process was implemented is now in its third week as the Trump Administration desires $5 billion for a wall along the southern border. But with the shutdown comes thousands of IRS employees furloughed, and may have clients questioning what will happen to their tax returns and refunds.

Jeff Fosselman, a CPA/CFP and J.D. and senior wealth advisor for Relative Value Partners, says that though the IRS is not completely shut "it is significantly scaled back." Though it was originally reported that taxpayers would not receive any tax refunds, that has been withdrawn and reversed. The agency will still be processing electronic and paper returns and all those that are required to pay in are expected to pay at the appropriate time.

High-net worth taxpayers usually file extensions and "file as late as possible,” comments Mary Kay Foss, a CPA in Walnut Creek, California. Amended returns, however, will not be processed, and these are usually also filed by high-net worth individuals. “Any individual involved in lending that requires tax return transcripts for underwriting will be impacted as well, as the issuance of transcripts is limited during the shutdown to requests related to disaster relief.”

Audits have also been shuttered - unless those that are hindered by the statute of limitations. This will not increase the time a taxpayer has to come to an agreement with the agency. Many clients are also unaware that state tax returns and refunds are also affected.

See Jeff Stimpson, How The Government Shutdown Affects Clients' Taxes, Financial Advisor, January 7, 2019.

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

Where Not to Die in 2019

Though the estate tax exemption now only applies to the wealthiest of individuals, there are still 17 states and D.C. that impose state either an state tax or an inheritance on their citizens. Some states apply the tax for all estates, some are only for larger estates. Maryland is the only state that applies both taxes. Several states rebelled when the exemption increased drastically, and have their own amounts far below the federal level. If you are in a state that has a minimum and you are nearing the cliff of having to pay out, proper estate planning is vital.

In New York state, individuals can make deathbed gifts starting in 2019 without the assets being applied toward the decedent's estate. The exclusion amount in New York is $5.47 million, approximately half of what the increased federal estate tax exemption is under the Tax Cuts and Jobs Act. So to stay under the exemption amount, a New Yorker no longer has to gift items three years out - in can be at the time of their demise.

Connecticut is the one state that could potentially have an exemption amount that’s higher than the federal exclusion amount—in 2026. For 2019, it’s set at $3.6 million, then scheduled to increase to $5.1 million in 2020, $7.1 million in 2021, $9.1 million in 2022, and to match the federal exemption amount in 2023.

See Ashlea Ebeling, Where Not to Die in 2019, Forbes, December 12, 2018.

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

What You Might Not Know About Passing on Your Cottage [Michigan]

Many of those in the Midwest, and possibly other parts of the country, have a goal of buying a vacation cottage up north to spend with their families. Children often gain fond memories of their days in these family cottages. But how do you pass on the property for the enjoyment of several family members without causing disputes?

If there is no settlement on timing and ownership interests, divisions within even the closest families can occur, including partitions of the property. Recent changes in Michigan’s property tax laws enable families to transfer ownership of family cottages to the next generation without incurring the steep increase in property taxes that would have resulted under prior law. Property taxes allocated to ownership can still be substantial, and transferring the cottage to a family member means they are now responsible for those taxes. These are not the only expenses, as maintenance and upkeep costs should also be factored into ownership of a cottage.

Disagreements may arise regarding whether other family members have an option or even an obligation to purchase the interest of a departing owner, and whether an interest can be transferred out of the direct family. If you’re in a cottage conflict, what can you do? Usually, the best solution involves an agreement between the family members that details the answers to these common issues

See Sara G. Lachman & Jonathan K. Beer, What You Might Not Know About Passing on Your Cottage, GRBJ.com, December 28, 2018.

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

Big Changes in Tax Law: New Rates Likely to Affect Everyone

Though having to pay taxes is a constant of life, the particulars of the tax law changes with every year. 

“The biggest tax law change in 30 years is in effect for 2018. Everyone, whether their tax situation is simple or complex will be impacted,” says ENJ Financial Tax Manager Whitney Gum, CPA. The major changes are larger brackets and a drop in rates, meaning the same taxable income last year will be at a lower rate.

Some itemized deductions may be limited, but could include medical expenses, state and local taxes, mortgage interest and donations to charities. The local and state tax deductions have a cap at $10,000, and corporate tax rate has decreased to a flat 21%.

“Another huge change, is the implementation of the Qualified Business Income Deduction (QBID),” Gum said. “This is a 20% deduction equal to the amount of qualified business income of sole proprietorships, partnerships, and S corporations. This is an area where planning is very important to make sure the taxpayer is receiving the maximum benefit of this deduction.”

See Dawnita Fogleman, Big Changes in Tax Law: New Rates Likely to Affect Everyone, Woodward News, January 1, 2019.

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

Article on Gender Equality: Islamic Law and Legal Validity

Islam Abdel Magid recently published an Article entitled, Gender Equality: Islamic Law and Legal Validity, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article. 

The regularly heated debate on personal status issues, especially for its connection, with a broader discussion about Shari’a or Islamic law, and its relation to positive laws and legal practice usually run in a vicious cycle between two conflicting tendencies, the first sees Shari’a as a major impediment to modernizing family laws, according to the stander of gender equality, while the other rejects the reform of these laws under any consideration except in the context of maintaining the legal and moral particularism, which is reflected in the principles of Shari’a, or at least its peremptory provisions. Certainly, the committee of “Individual Freedoms and Equality Report ”(IFER), sponsored by the Republic of Tunisia President, where is charged with examining the legal reforms related to the most controversial issue, the equality of inheritance between women and men opens a broad horizon for readdressing the issue of gender equality in Arab countries, particular Tunisia and Egypt. Indeed, the conflicting two tendencies on the content and the border of legal reforms, ignore together the importance of social facts in determining the validity of laws, in favor of focusing on the one hand, stander of natural rights and the insistence on the relationship between ethics and Islamic law, from another hand. This trend in western academic circles represented by e.g. Wael Hallaq and Talal Asad. On the contrary, I attempt to reconsider the relationship between the Islamic Law and the legal positivism i.e. the thesis that law existence and content reflect in one way or another the social facts. And discuss the evolution of the contemporary Arab laws between attempts to revive Islamic law and receive Western/European laws. Finally, defend the basic hypothesis in this paper; that the validity of the laws, regardless of their moral sources, are linked to their suitability to the degree of development of social facts, noting that this relationship between laws and facts is not a compatible, but rather a matter of dialectic and emancipation.

$80 Billion Locked in a Golden Cage in Austria May Be Freed

Austria allowed families a tax-friendly way to transfer wealth and keep things together in 1993 to keep capital within the country. Toda, however, the trusts have outlived their usefulness, and are perceived as preventing the efficient use of capital.

Many people within the administration of these trusts as well as the beneficiaries and trustees are calling for lawmakers to revise them, a move that could spur mergers, acquisitions, share sales, breakups and takeovers. “The family is no longer in control, managers are not empowered to make bold moves, and decision-makers at the trust are too far away from the business. If trust laws were more flexible, these companies could break free and equity capital might become available for new ventures," said Klaus Vukovich, a banker at boutique investment bank Alantra in Vienna.

Options being studied include lowering the costs of dissolving trusts, allowing some family members to exit, redefining liability laws for trustees so they can take riskier decisions and giving founders greater control.

Trusts have served as useful vehicles for stalwarts of Austrian and German industry, among them some household names: Porsche-Piech family that controls Volkswagen AG, the Leitner family that built up Andritz AG, gunmaker Gaston Glock and developer Rene Benko.

See Matthais Wabl, $80 Billion Locked in a Golden Cage in Austria May Be Freed, Bloomberg, December 1, 2018.

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

Hawaii's Our Care, Our Choice Law Goes in to Effect

On the first day of the new year, Hawaii became the seventh state in the country to allow terminally ill patients to be prescribe medication to end their own lives.

The law requires the patient to have two diagnoses from independent physicians stating that they have six months or less to live and also must undergo psychological counseling. Scott Foster of the Hawaii Death with Dignity Society says, “Having that medication right there knowing that if they need it that’s there. That is what relieves people to no end.”

But the new law is still controversial, with many doctors and pharmacists believing that it violates the Hippocratic Oath. “It’s really not physician-assisted suicide, it’s doctors writing a prescription to a legal dose of medicine to the kill the patient,” said attorney James Hochberg, president of the Hawaii Family Advocates.

See Rick Daysog, Hawaii Now Allows Terminally Ill Patients to Take Their Own Lives with Prescription Drugs, January 1, 2019.