Wills, Trusts & Estates Prof Blog

Article on Tax as Part of a Broken Budget: Good Taxes Are Good Cause Enough

Stephanie Hunter McMahon recently published an Article entitled, Tax as Part of a Broken Budget: Good Taxes Are Good Cause Enough, Tax Law: Tax Law & Policy (2018). Provided below is an abstract of the Article.

The federal budget is a myth. Despite being a myth, Congress uses the budget to limit its choices by linking its revenue-raising and spending powers under a federal debt ceiling. Through its self-imposed limits, Congress puts tremendous pressure on how it calculates its budget, and that calculation generally assumes any tax provisions will raise revenue when the law becomes effective. However, many tax provisions require additional direction to ensure they operate as the budgetary process expects. That task falls to the Treasury Department and the Internal Revenue Service (IRS) as a bureau of the Department. Consequently, limiting the production of tax rules that implement, interpret, and sometimes limit possible interpretations of tax statutes is problematic because their projected revenue is used to balance the budget. Nevertheless, these Treasury Department rules are under attack on the grounds that their issuance fails to comply with the Administrative Procedure Act (APA). The APA generally requires notice and comment for the promulgation of rules, a costly process in terms of time and agency resources. This Article argues that there should be a wider acceptance of the good cause exception for the speedier issuance of tax regulations and other IRS-level implementing materials in order to satisfy Congress’s revenue expectations.

Discussing the Issue of Aging Parents

The recent changes in the tax law may induce several families to bring up the uncomfortable topic of aging parents this holiday season. But these types of conversations can offset the possibility of any unpleasant surprises in the future.

The decision will ultimately be up to the parents, but even if children are to be the ones that bring up the subject, preparation and research should be done beforehand. Durable power of attorney, health care agent and executor are all positions that have certain responsibilities and requirements. Each one should be discussed with family members or close friends, or if those parties are not acceptable (or they decline), other arrangements should be considered.

A frank discussion of parental assets may make it easier for children to understand the overall planning objectives and decision-making process. An understanding of parental assets can also help with long and short term planning, ranging from tax strategies and charitable giving to options in the event of a long-term care illness. The increase in the standard deduction many people will no longer itemize deductions, and the increased federal estate tax exemption of $11,180,000 may make some charitable donations obsolete - for tax benefit purposes. Beneficiaries may also benefit from a step-up basis for highly appreciated assets, thus saving in capital-gains taxes.

See Kristin Shirahama, Discussing the Issue of Aging Parents, Financial Advisor, November 6, 2018.

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

Article on Abandoning Realization and the Transition Tax: Toward a Comprehensive Tax Base

Henry Ordower recebtly published an Article entitled, Abandoning Realization and the Transition Tax: Toward a Comprehensive Tax Base, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

The Tax Cuts and Jobs Act of 2017 imposed a tax, the “transition tax,” on as much as 31 years of undistributed, accumulated corporate income. This article focus on that transition tax as it evaluates the function and constitutionality of the tax and considers whether the transition tax might serve as a model for addressing the broader problem of deferred income in the United States. The article views the transition tax as joining the expatriation tax and other mark to market inclusion provisions in abandoning any pretext that there is continued vitality in the realization principle as something more compelling than any other longstanding and obsolescing tax principle. Recommending that Congress seize the Tax Cuts and Jobs Act moment and discard the general rule deferring the inclusion of gain in income through a realization requirement in favor of the annual marking to market of all the taxpayer’s property, the article models a general mark to market transition tax after the new transition tax on deferred foreign income. The proposal recommends inclusion of the net gain in taxpayers’ incomes at significantly reduced rates of tax, including one rate for liquid assets and a lower rate for illiquid assets and an opportunity to pay the tax in installments. Following the initial inclusion under this transition tax, gain and loss would be included annually consistent with comprehensive tax base definitions under an accrual system of taxation based on marking to market. Growth or decline in the value of taxpayers’ property would be taken into account income annually. In some instances permitting some taxpayers to defer payment of the tax until disposition of the property may be desirable but the continued deferral might incur an interest charge.

CLE on Top Ten Estate Planning Techniques After the 2017 Tax Act

The New York City Bar is holding a conference and webcast entitled, Top Ten Estate Planning Techniques After the 2017 Tax Act, on Wednesday, November 14, 2018 at 6:00 p.m. - 9:00 p.m. at the New York City bar in New York City, New York. Provided below is a description of the event:

When attorneys meet with clients to discuss estate planning, there is an assortment of ideas that are considered, discussed, and presented to clients. This program covers the ten estate planning techniques that the speakers most frequently consider. The goal of the program is to discuss how each technique works, including some of the more pressing (or troublesome) technical considerations, who it works for, as well as the salient planning considerations. Some of the techniques covered include lifetime planning, GRATs, QPRTs, sales to IDITs, Family Limited Partnerships, CRUTS, CLATs, insurance trusts, and a few other common planning techniques.

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

New Act: the Kasem/Baksys Visitation Law [Illinois]

This bill would create the “Frail Individual Family Visitation Protection Act”, aka the Kasem/Baksys Visitation Law.  It defines a "frail individual" and permits family members of a frail individual to petition the court for visitation if a caregiver is unreasonably preventing visitation.  NAELA originally opposed the bill as it lacked many important limiting provisions.  Through the legislative process, the bill was amended to exclude guardianships and POAs and to include other procedural protections to ensure that the “frail individual’s” rights and interests were protected.  Moreover, we sought to ensure that a proper legal process was articulated to address any such actions.  HB4039 passed unanimously out of the House and Senate and is now on Governor Rauner’s desk awaiting signature. Thank you to Rep. Sara Wojiecki-Jimenez (D-Springfield) and Sen. Melinda Bush (D-Grayslake) for their hard work on this bill.

See Tony Abboud, NAELA Post-Legislative Session Report #1, NAELA-IL.org, August 10, 2018.

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

Article on Sign on the [Electronic] Dotted Line: The Rise of the Electronic Will

Gerry W. Beyer & Katherine Peters recently published an Article entitled, Sign on the [Electronic] Dotted Line: The Rise of the Electronic Will, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article.

The electronic will is here … almost. The last two years have seen rapid development in the area of electronic wills. As of September 2018, several states either have enacted electronic will statutes or are in the process of considering such legislation. This article provides the history of e-wills and reviews e-will statutes, both enacted and proposed, along with the Summer 2018 draft of the Electronic Wills Act.

Want a Divorce? Then do it Right Now or Pay a Much Bigger Tax Bill

The 2017 Tax Cuts and Jobs Acts has another card to play that will be laid down on January 1st of 2019 - the tax burden on alimony will shift from those that receive it to those that make alimony payments. Alimony will no longer be taxable income and therefore there will not be any more tax deductions for the typically higher earning divorcee that is sending spousal support checks.

This change will effect both the uber elite, with their massive amounts of assets and cash, and the middle class families with a single income earner. Because the payers of alimony are almost always in a higher tax bracket than their exes, the new rules will mean less after-tax money to go around.  For those embroiled in a current divorce case, attorneys are attempting to finalize and settle them before the end of the year.

The threat of losing the deduction is accelerating the process. Peter Walzer of Walzer Melcher, a law firm in Los Angeles, said one of his clients got a call from her husband, urging her to speed up the proceedings after he learned about the tax law change. The irony is that previously he had been the one slowing down the divorce, Walzer said.

Even spouses who have not started divorce proceedings are wondering if they should rush to get a deal done before year end. Sucherman, who works at San Francisco-based Sucherman Insalaco, said he’s getting inquiries from potential clients, some who are not even separated yet.

See Ben Steverman, Want a Divorce? Then do it Right Now or Pay a Much Bigger Tax Bill, Financial Advisor, November 2, 2018.

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

Article on The Social Meaning of the Tax Cuts and Jobs Act

Linda Sugin recently published an Article entitled, The Social Meaning of the Tax Cuts and Jobs Act, Tax Law: Tax Law & Policy eJournal (2018). Provided below is an abstract of the Article.

This Essay exposes the moral messages implicit in the Tax Cuts and Jobs Act (TCJA). It argues that the legislation reflects values that were not openly debated or discussed in the legislative process, but are crucial to the distributional effects of the law. The TCJA reduces progressivity and increases deficits because it favors traditional families, prefers capital to labor income, treats people as detached from each other, makes charity the narrow concern of the rich, and privileges the acquisition of assets. Fairness in taxation depends on explicitly identifying social values that produce economic justice and purposely designing the law to achieve fairness

U.K. to Roll Out First-of-Its-Kind Digital Tax

The U.K. said it will move ahead with plans to introduce a tax on locally generated revenue by large technology firms. Several other countries are attempting to implement similar legislation on digital services that provided by large companies such as Facebook and Google.

At issue is how governments collect taxes from the handful of tech firms that have morphed into global, digital consumer-services giants, many of which are based in the United States. It has been a question on how to form a standardized tax for these types of companies for years. The Organization for Economic Cooperation and Development, a forum of wealthy countries, has been leading the international digital-tax talks. The U.K. said they were tired of waiting, and plans to start taxing the tech firms by 2020.

The proposal would affect businesses generating U.K. revenue from services including search engines, social-media platforms and online marketplaces. That makes the ad-selling businesses of Google and Facebook particularly vulnerable. It would only target large companies that have a global revenue of at least half a million pounds, for $641 million, and apply a 2% to income accrued in the U.K. Though it may seem like a negligible amount to these giants, it is the first concrete step towards taxing these types of business in any country they generate income in.

See Paul Hannon & Nina Trentmann, U.K. to Roll Out First-of-Its-Kind Digital Tax, Wall Street Journal, October 29, 2018.

The Gift Tax Return Trap and How to Avoid it

Even though the gift and tax exemption was increased drastically in 2018 to almost $11.2, it does not mean that a person that does not have a large estate should not file a gift tax return. The annual tax exclusion is $15,000 per beneficiary before it starts to count against a person's lifetime exemption. The Internal Revenue Service can still impose a penalty for not filing the gift tax return at all, even in the case of not being close to the annual exclusion for a particular year or having an estate valued well below the exemption.

Gifts above the annual gift tax exclusion amount made during the year generally must be reported on Form 709. The gifts might not be taxed, because of the lifetime gift tax exclusion. But the gifts reduce the lifetime exclusion and must be reported so the IRS can track your use of the lifetime exclusion amount. When the gift is a joint gift from a married couple, each spouse must file a tax return to show that they consented to the gift.

How would the IRS know about gifts if a person never files a gift tax return when they made a gift? The agency began clamping down on unfiled gift tax returns by searching for gifts that should have been reported, both during a person's lifetime and through an audit of an estate after a person's death.

See Bob Carlson, The Gift Tax Return Trap and How to Avoid it, Forbes, October 23, 2018.

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