Wills, Trusts & Estates Prof Blog

Article on Red States, Blue States: Lessons from the State Death Tax Credit and the 'SALT' Deduction.

Jeffrey A. Cooper recently published an Article entitled, Red States, Blue States: Lessons from the State Death Tax Credit and the 'SALT' Deduction, Tax Law: Tax Law & Policy eJournal (2019). Provided below is an abstract of the Article. 

Since 1861, every version of the federal income tax has included a deduction for state and local taxes (often referred to by its popular acronym “SALT”). Since this provision, the “SALT deduction,” minimizes the effect of state and local taxes on taxpayers, it offers greater benefits to those living in states that impose the highest tax burden — the high-tax “blue” states. In 2017, the Tax Cuts and Jobs Act marked a major shift in this long-established federal policy toward state taxes. Among its many provisions, the Act capped the SALT deduction at $10,000 per married couple, providing no Federal tax offset for amounts paid in excess of that amount.

In this article, I attempt to address two questions raised by this turn of events. First, how will states respond to this change in federal law? Second, does the capping of the SALT deduction represent a major shift in federal-state relations, an unprecedented attack on blue states, or is it simply politics as usual?

My novel approach to the subject is to consider these questions by exploring the similarities and contrasts between the income tax SALT deduction and the estate tax state death tax credit, which was established in 1924 and repealed in 2001. Viewing the 2017 legislation within this broader historical context more reveals trends and patterns, providing greater insight than would a study of the SALT deduction in isolation.

This approach yields two results. First, analyzing state legislative responses to the 2001 estate tax changes helps to predict how state governments may respond to the 2017 income tax change and thus offers insight into the future evolution of state income tax regimes. Second, placing the 2017 Tax Act in a broader historical context reveals a pattern of federal interference with state tax regimes, yielding lessons about the interdependence of federal and state tax law as well as how a changing political climate can shape tax policy.

Article on Conceptions of the Fiduciary in Trust Law

Tobias Barkley recently published an Article entitled, Conceptions of the Fiduciary in Trust Law, Wills, Trusts, & Estates Law eJournal (2019). Provided below is an abstract of the Article.

Statutory reform of trust law in New Zealand is taking the groundbreaking step of defining the express trust relationship. Part of the definition is that trusts are fiduciary relationships. As interpretation of the statute will take into account common law principles, this reform provides an opportunity to reflect on what fiduciary means in trust law. The article identifies five distinct conceptions of the fiduciary in trust cases. While all five are concerned with restraint on the trustees’ discretion, different trustees can be restrained by different standards of behaviour. The identified fiduciary conceptions range from the classical fiduciary, who must solely and exclusively act for the benefit of others, to the honest fiduciary, who is free to honestly benefit him or herself. The range of meaning in the common law will complicate interpretation of ‘fiduciary’ in the New Zealand legislation.

Estate Planning in Tennessee: Could You Benefit From a Community Property Trust?

A common goal of estate planning is avoiding the federal estate tax as well as a state estate tax, if applicable. Historically, the federal estate tax was set at a very low level, consequently making proper  asset protection a necessity. But now the federal estate tax exemption amount is set at $11.4 million for an individual and $22.8 million for a married couple, and since 2016 Tennessee no longer has an inheritance tax. However, there are other tax oriented goals of proper estate planning.

Tennessee is one of the 41 states that are not community property states. Instead, it is a common law state. In 2010, the Tennessee legislature enacted the Tennessee Community Property Trust Act which allows assets in the trust to be treated as if they were in a community property state. Upon the death of the first spouse, both spouses’ interests receive a basis increase to the current fair market value.

If a lower tax bill is not appealing enough, additional advantages of a community property trust include:

• It is revocable so assets can be pulled out of the trust at any time.
• At both the first and second death, trust assets avoid probate and any associated costs while keeping all financial information private.
• The trust can hold all types of assets including developed or undeveloped real estate, business interests, stocks, bonds, mutual funds, and many other investments.
• A community property trust can protect an asset from becoming a marital asset in a second (or third, etc.) marriage.

See Cliff Taylor, Estate Planning in Tennessee: Could You Benefit From a Community Property Trust?, Biz Journal, September 4, 2019.

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

Comment on Death with Dignity for the Seemingly Undignified: Denial of Aid in Dying in Prison

Kathleen S. Messinger recently published a Comment, Death with Dignity for the Seemingly Undignified: Denial of Aid in Dying in Prison, 109 J. Crim. L. & Criminology 633-673 (2019). Provided below is an abstract of the Comment.

The medical community has fundamentally changed how we think about life and death. Humans in privileged parts of the world are living longer and have access to life-saving treatment. The focus on quantity of life then has shifted to emphasizing quality of life and questioning whether longevity should at the expense of comfort or satisfaction. The conversation surrounding quality of life, and by extension end-of-life care, has included whether a competent adult has a right, or should have a right to end their own life on their own terms. The history of aid in dying is wrought with political ideology, notions of morality, and discussions of autonomy. In the wake of an aging population, aid in dying is more relevant now than ever. Aid in dying is often supported by notions of autonomy and dignity in choosing the conditions of if, when, and how to end one's life, however, there is one noticeable segment of the population entirely left out: incarcerated individuals. The incarcerated population is particularly relevant to the aid in dying conversation because, as the justice system continues to balloon and incarcerate more people, prisons are overcrowded, underfunded, and ill-equipped to support terminally ill and aging inmates. This leaves the aging incarcerated population vulnerable. As states continue to contemplate and pass legislation that permits aid in dying in particular circumstances, one is left wondering how, if at all, this legislation will affect those incarcerated. Early signs, in the form of prison policies and regulations, of how prisons will approach aid in dying for qualifying inmates suggests that the same dignitary respect afforded to non-incarcerated folk is explicitly forbidden to inmates in prison.

This Comment seeks to answer the question of who may choose to die on their own terms, in their own way. If we find that incarcerated individuals have a right to aid in dying, are there reasons or justifications for why we should not permit it?

Why You Should Change Your Will Now

If you have made the adult decision to create a will, you have taken a step in the right direction. But even if you think that your estate is modest or you life has not changed much since you signed your will, it is still a good idea to review - just in case.

Federal laws regarding wills and estates are ever-changing, especially from one administration to another. State laws regarding inheritance and gift taxes can also be updated. You may have also written your will before a large promotion or before your parents died, leaving you a portion of their own estates. Often, parents want to protect their children from themselves. If your child is currently in a rebellious stage or not making the best choices, you may have to create a trust to ensure their assets are safe.

A person's estate plan should grow with them, and if you have not look at yours in a while, the time is now.

See Christine Fletcher, Why You Should Change Your Will Now, Forbes, August 27, 2019.

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

Article on Freedom of Disposition v. Duty of Support: What's a Child Worth?

Phyllis C. Taite recently published an Article entitled, Freedom of Disposition v. Duty of Support: What's a Child Worth?, 2019 Wis. L. Rev., 325-348 (2019). Provided below is an introduction of the Article.

Mandating financial responsibility for the care of children during one's lifetime is without question. Child support laws have been implemented in every state in America based on the inherent duty to financially support dependent children. Some laws even extend that duty to provide financial support to children over the age of eighteen when the child has a disability or pursues higher education.

Just as entrenched is the right of a decedent to dispose of his property as he pleases, known as freedom of disposition. Every state has intestacy provisions that provide for disposition of property after a decedent's death, trumped by specific wishes of the decedent in the form of a Last Will and Testament or any other testamentary document. When these two principles clash, which public policy principle should prevail, freedom of disposition or duty to financially support children?

The duty to support children should be paramount in any just legal system, especially after death when a source of financial support is no longer available. As such, testamentary freedoms should be subordinate to the duty to financially support children. In order to ensure financial protection of children, forced shares should be implemented to provide financial provisions to minor children in testate estates. Additionally, an elective share system should be adopted to provide minimum financial support to adult children, based on age, in testate estates.

This Article explores historical justifications for favoring freedom of disposition and also provides a comparative analysis of how other countries deal with the duty to support families, specifically children, after death. The selected civil jurisdictions for the focus of this Article are Spain, Louisiana and British Columbia. The selected jurisdictions under common law systems are New Zealand, Canada and the United Kingdom.

Part I provides relevant historical information about the civil and common law systems. Part II focuses on the requirement that parents provide financial support to their minor children during their lifetimes. Part III concentrates on the financial responsibilities of decedents after death to their surviving children. Part IV discusses the history and justifications of financial responsibility of decedents to surviving spouses. Part V proposes ways to balance freedom of disposition with the duty of support and the conclusion follows.

New Zealand Adopts Trust Arbitration in New Trusts Act 2019

New Zealand joins the ranks of other trust-friendly jurisdictions by adopting trust arbitration clauses within their new Trusts Act of 2019. The country recently revised its Arbitration Act of 1996 in May of this year, and followed it up with extending it to trusts.

There are two provisions of the Act that bring about the most positive changes: Section 144 and Section 145. Section 144 deals with unborn or unascertained beneficiaries of a trust that is subject to ADR, and Section 145 allows a court to enforce an arbitration provision in a trust.

See here for more information.

Special thanks to Stacie I. Strong (Manley O. Hudson Professor of Law, University of Missouri) for bringing this article to my attention.

Article on Knocking on Heaven's Door: Ending the Ban on Live Person-to-Person Solicitation to Close the Racial Estate-Planning Gap

Diane Klein recently published an Article entitled, Knocking on Heaven's Door: Ending the Ban on Live Person-to-Person Solicitation to Close the Racial Estate-Planning Gap, Wills, Trusts, & Estates Law eJournal (2019). Provided below is an abstract of the Article.

The well-documented and persistent racial wealth gap, together with the other barriers, has created a predictably racialized estate-planning gap, with damaging consequences in communities of color. Despite Anglo-American law’s strong and oft-expressed preference for testacy, a formal legal commitment to enabling those competent persons who wish to control the devolution of their property upon death to do so, and a rule of professional responsibility banning conduct with a discriminatory impact, the profession continues to burden itself with a rule that virtually ensures that (especially poor) people of color do not benefit from estate-planning as much as they might. This Article proposes a modification of Model Rule 7.3(b), to lift the solicitation ban as it applies to competent, non-dependent adults to whom non-litigation estate-planning services are offered, and from whom informed consent, confirmed in writing, is obtained for any resulting legal services. It is a clear, practical step that balances legitimate concerns about protecting vulnerable clients with the need for access to estate-planning services.

Beware, the IRS is Eyeing Your Inherited Money

Those that attained their wealth through inheritance are always on guard in case laws change that can affect their taxes. Two recently passed legislative measure may cause wealthy individuals an appropriate level of paranoia.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 passed the House of Representatives almost unanimously, with a vote of 417-3. The Act says that its intention is to encourage more businesses to offer retirement plans and expand opportunities for workers to invest their retirement account funds. It increases the age that a person must take out required minimum distributions (RMDs) from their IRAs, from 70.5 to 72. All that sounds good, but here is the nefarious part: instead of using an IRS table to allow a beneficiary to drain an inherited IRA, non-spouse beneficiary must eliminate the IRAs funds within 10 years of the person's death.

The Tax Cuts and Jobs Act dramatically increased the federal gift and estate tax exemption, and each following year until 2026 will be adjusted for inflation. But the exemption is scheduled to revert back to the much-lower pre-TCJA level in 2026. What tax ramifications would there be for large gifts made during this time? Proposed IRS regulations issued late last year would provide some protection by stipulating that folks who make large gifts while the exemption is in place would not be penalized if the exemption reverts back.

See Beware, the IRS is Eyeing Your Inherited Money, Wealth Advisor, July 15, 2019.

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

CLE on Changing/Repurposing Old Trusts to Work Under the New Tax Rules

The National Business Institute is holding a webcast entitled, Changing/Repurposing Old Trusts to Work Under the New Tax Rules, on Monday, October 21, 2019 at 10:00 AM to 5:00 PM Central. Provided below is a description of the event.

Learn How and When to Modify a Trust

New tax rules are in effect, and your clients may be wondering what impact these major changes have had on their trusts. Whether to qualify for government benefits, minimize tax exposure or to take advantage of new incentives, there may be good reason to amend or restructure the trust. Do you have the knowledge and skills you need to make this happen? Our experienced faculty will walk you through the legal process of modifying a trust, offering solutions to specific trust issues in the new tax law and equipping you with the tools you'll need to respond to future changes. Register today!

• Help your clients identify when a trust should be modified.
• Understand who has the legal authority to make a change to the trust
• Gain insight into the legal process involved with modifying an existing trust
• Determine what to do with old credit shelter trusts
• Learn how to build modification provisions into the trust and receive other helpful drafting tips.
• Discover what has changed as a result of the new tax rules, what stayed the same, and what still works.

Who Should Attend

This course is designed for attorneys. It will also benefit financial planners, accountants and CPAs, tax preparers, trust officers, and paralegals.

Course Content

• What Still Works
• When Should the Irrevocable Trust be Modified?
• Mechanisms for Making the Change
• What to Do With Old Credit Shelter Trusts
• Specific Solutions to New Trust Tax Problems and Opportunities
• Qualifying Trusts for the New Pass-Through Entity Deduction
• Drafting for Flexibility to Respond to Future Tax Law Changes
• Legal Ethics