Wills, Trusts & Estates Prof Blog

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

Sunday, June 19, 2022

SECURE Act 2.0 Analyzed

Albert Feuer recently posted on SSRN his article entitled Would the Securing a Strong Retirement Act Secure More Retirement Equity? (June 3, 2022) which appears in 50 Tax Mgmt.Comp. Plan. J. No. 6 (2022). Here is the abstract of his article:

On March 29, 2022 the House approved H.R. 2954 that is titled the Securing a Strong Retirement Act of 2022 (the SECURE Act 2.0) by a vote of 414-5.

On May 26, 2022, a discussion draft of the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act of 2022 was released by the Senate Health, Education, Labor, and Pensions Committee Chair Senator Patty Murray (D-WA), and Ranking Member Senator Richard Burr (R-NC).

The article argues that despite providing tax incentives in excess of more than $70 billion, the bills in concert would intensify rather than diminish retirement benefit disparities, while leaving tens of millions of American families and workers with insufficient savings to retire comfortably. The article analyzes those bills’ provisions and describes:

• those bills’ provisions that would secure more retirement equity and how to improve those provisions,
• those bills’ provisions that would secure less retirement equity, and
• provisions that would secure more retirement equity, if added to the bills would secure more retirement equity.

June 19, 2022 in Articles, Non-Probate Assets | Permalink | Comments (0)

Monday, March 14, 2022

Tax Court in Brief: Estate of Levine v. Commissioner | Split-Dollar Life Insurance and Estate Planning

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose. For a link to the podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.
 
One of the cases recently covered in Tax Court in Brief is Estate of Levine v. Commissioner.
 
Below is a summary of the case and the issues of law examined and decided on in the case: 
 
Short Summary: This case involves a split-dollar life insurance estate-planning arrangement. Marion Levine (Levine) entered into a transaction in which her revocable trust paid premiums on life insurance policies taken out on her daughter and son-in-law that were purchased and held by a separate and irrevocable life-insurance trust that was settled under South Dakota law. Levine’s revocable trust had the right to be repaid for the premiums. Decisions for investments within the irrevocable life-insurance trust, including for its termination, could be made only by its investment committee, which consisted of one person—Levine’s long-time friend and business partner. Levine died, and the policies had not terminated or paid out at that time as her daughter and son-in-law were still living. The question was what has to be included in her taxable estate because of this transaction: (1) the value of her revocable trust’s right to be repaid in the future (i.e., $2,282,195), or (2) the cash-surrender values of those life-insurance policies at the time of Levine’s death (i.e., $6,153,478)?
 
Primary Holdings:
  • The split-dollar arrangement in this case met the specific requirements of the Treasury Regulations. The policies in question were purchased and owned by the irrevocable trust, not Levine, and the arrangement expressly gave the power to terminate only to the trust’s investment committee. Thus, neither IRC Section 2036(a)(2)—the general “catch-all” statute for estate assets—nor Section 2038—the “claw-back” provision for certain estate assets transferred before death—do not require inclusion of the policies’ cash-surrender values because Levine did not have any right, whether by herself or in conjunction with anyone else, to terminate the policies.
  • As such, and as of her death, Levine possessed a receivable created by the split-dollar life insurance, which was the right to receive the greater of premiums paid or the cash surrender values of the policies when they are terminated.
  • Contrary to the Commissioner’s position, the transaction was not merely a scheme to reduce Levine’s potential estate-tax liability and there was a legitimate business purpose. There was nothing behind the “transaction’s façade” that would suggest that appearance of the express written terms of agreement and arrangement do not “match reality.”
  • Pursuant to applicable state law, the trust’s investment committee—albeit one person—owed fiduciary duties to the trust and beneficiaries other than Levine, Levine’s daughter, and son-in-law, and the evidence illustrated that the written agreements afforded Levine no power to alter, amend, revoke or terminate the irrevocable trust such that its assets should be included in Levine’s estate pursuant to Sections 2036(a)(2) or 2038.
  • The only asset from the split-dollar arrangement that Levine’s revocable trust owned at the time of her death was the split-dollar receivable.
Key Points of Law:
  • Irrevocable life-insurance trusts are typically used as a vehicle to own life-insurance policies to reduce gift and estate taxes. If done properly, a life-insurance trust can take a policy out of its settlor’s estate and allow the proceeds to flow to beneficiaries tax free. Split-dollar life-insurance trusts are a tool to remove death benefits from a settlor’s taxable estate—or at least defer payment of any tax owed.
  • Split-dollar arrangements entered into or materially modified after September 17, 2003 are governed by Reg. § 1.61-22. A split-dollar life-insurance arrangement between an owner and a non-owner of a life-insurance contract in which: (i) either party to the arrangement pays, directly or indirectly, all or a portion of the premiums; (ii) a party making the premium payments is entitled to recover all or a portion of those premium payments, and repayment is to be made from or secured by the insurance proceeds; and (iii) the arrangement is not part of a group-term life insurance plan (other than one providing permanent benefits). Id. § 1.61-22(b)(1)-(1)(iii).
  • Gifts of valuable property for which the donor receives less valuable property in return are called “bargain sales.” The value of gifts made in bargain sales is usually measured as the difference between the fair market value of what is given and what is received. However, the Treasury Regulations provide a different measure of value when split-dollar life insurance is involved. See Reg. § 1.61-22(d)(2).
  • There are two different and mutually exclusive regulatory regimes applicable to split-dollar insurance trusts—called the “economic benefit regime” and the “loan regime”—and that govern the income- and gift-tax consequences of split-dollar arrangements. These two regimes determine who “owns” the life insurance policy that is part of the arrangement. The general rule is that the person named as the owner is the owner. Non-owners are any person other than the owner who has a direct or indirect interest in the contract. However, if the only right or economic benefit provided to the donee under a split-dollar life-insurance arrangement is an interest in current life-insurance protection, then the donor is treated as the owner of the contract. This is the economic-benefit regime.
  • Where a split-dollar life insurance trust meets the requirements of Treas. Reg. § 1.61-22 the IRS and the courts must look to the default rules of the Code’s estate-tax provisions to figure out how to account for the effect of the split-dollar arrangement on the gross value of the particular estate.
  • The Code defines a taxable estate as the value of a decedent’s gross estate minus applicable deductions. See 26 U.S.C. § 2051. Section 2033 provides that a decedent’s gross estate includes the value of any property that a decedent had an interest in at the time of her death. Sections 2034 through 2045 identify what other property to include in an estate.
  • For example, Section 2036(a) is a catchall designed to prevent a taxpayer from avoiding estate tax simply by transferring assets before the taxpayer’s death. Pursuant to the related Treasury Regulations, “[a]n interest or right is treated as having been retained or reserved if at the time of the transfer there was an understanding, express or implied, that the interest or right would later be conferred.” Treas. Reg. § 20.2036-1(c)(1)(i). Similarly, Section 2038 allows for a “claw-back” into a decedent’s estate the value of property that was transferred in which the decedent retained an interest or right—either alone or in conjunction with another—to alter, amend, revoke, or terminate the transferee’s enjoyment of the transferred property.
  • Both sections 2036 and 2038 include an exception for transfers that are “a bona fide sale for an adequate and full consideration in money or money’s worth.” 26 U.S.C. § 2036(a), §2038(a)(1).
 

See Tax Court in Brief: Estate of Levine v. Commissioner | Split-Dollar Life Insurance and Estate PlanningFreeman Law: Tax Court in Brief (2022). 

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

March 14, 2022 in Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Cases, Non-Probate Assets | Permalink | Comments (0)

Monday, February 14, 2022

Article: Just A Will Won’t Cut It: Planning for the Transfer of Non-Probate Assets at Death

Arielle M. Prangner recently published an article entitled, Just A Will Won’t Cut It: Planning for the Transfer of Non-Probate Assets at Death, Estate Planning Journal Vol. 14 Issue 1 (2022). Arielle

Provided below is the abstract to the Article: 

When crafting a comprehensive estate plan for clients, planning for and coordinating assets that pass outside of probate is an imperative part of the process. Most clients’ estates include non-probate assets; in fact, the proportion of these non-probate assets in relation to the overall value of the client’s estate is quite significant. It is not uncommon for life insurance and retirement plans alone to make up the majority of the value of a client’s gross estate. Accordingly, attorneys must advise clients to incorporate these assets into the estate plan, and not just as an afterthought.

February 14, 2022 in Articles, Estate Administration, Estate Planning - Generally, Non-Probate Assets, Wills | Permalink | Comments (0)

Wednesday, December 8, 2021

A Texas woman was found dead 2 days after she signed a $250,000 life insurance policy, and her husband has been charged with her murder

PoliceChristopher Collins, a Texas man was recently charged with murder after his wife, Yuan Liang, was found dead just days after the couple took out a life insurance policy. 

Collins told police that he "suspected" that his wife was killed by intruders, however, the house was strangely not ransacked. Liang was found dead in the couple's home just two days after the couple signed a $250,000 life insurance policy. 

Surveillance footage from the gym showed Collins "pacing around" the gym for 45 minutes, but only working out for 5 minutes before he called the police from the gym's cafe. When police searched a gym locker, they uncovered Liang's wallet—which Collins had reported missing—and a cosmetic bag.

Collins told police that Liang sent him a text message about a person outside of their home while he was at the gym. Collins further stated that he lost contact with his wife shortly after she reported the "suspicious male" outside of their home. 

Although Collins told police that the couple did not have a life insurance policy, officers who searched the home found a piece of paper evidencing a life insurance policy for $250,000. 

Collins did not appear in his first scheduled court appearance due to "mental health reasons." It is unclear how Collins intends to plead. Collins is currently being held on a $150,000 bond. 

See Katie Balevic, A Texas woman was found dead 2 days after she signed a $250,000 life insurance policy, and her husband has been charged with her murder, Yahoo News, November 27, 2021. 

Special thanks to David S. Luber (Florida Probate Attorney) for bringing this article to my attention.

December 8, 2021 in Estate Planning - Generally, New Cases, Non-Probate Assets | Permalink | Comments (0)

Wednesday, November 17, 2021

An Attorney’s Introductory Guide to the IRA Distribution Rules Under the Secure Act

Goldberg_Book_3New York County Lawyers Association has just released Seymour Goldberg's excellent eBook entitled An Attorney’s Introductory Guide to the IRA Distribution Rules Under the Secure Act. As the website to order this book explains:

The Guide, written in clear, concise language with multiple examples, is designed to help attorneys advise their clients on the major changes the Secure Act made regarding retirement distribution rules.

Not only will the Guide assist attorneys in counseling their clients, but it will also help them with their own retirement planning!!!

November 17, 2021 in Books, Non-Probate Assets | Permalink | Comments (0)

Tuesday, October 19, 2021

Approaching Equitable Retirement Tax Incentives

Albert Feuer has recently posted on SSRN  his article entitled Approaching Equitable Retirement Tax Incentives.   Here is the abstract of his article:

In September, the Ways-and-Means Committee of the House approved proposals to substantially improve the equity of retirement tax incentives for American workers. The new requirement that employers automatically enroll employees in a simple defined contribution plan, and the new refundable retirement savings tax credits, both do so. One major proposal needs to be added. Roth individual retirement accounts and annuities (IRAs) must be subject to the same required minimum distribution (RMD) rules as traditional IRAs. Other Committee proposals may be improved. Simplify the new excess balance distribution rules for a taxpayer, whose aggregate IRA and defined contribution accounts exceed $10 million at the end of a tax year. Harmonize the sanctions for excess balance violations with those for RMD rule violations. Simplify the new Roth IRA conversion rules. Remove the income threshold triggers for the new limits. Increase reporting about participant and beneficiary individual accounts.

Congress is now considering how to better implement the common-sense principle that tax incentives to encourage adequate retirement savings be focused on retirement savings. By increasing transparency and the benefits directed at those with inadequate retirement saving as described herein, and reducing loopholes and undue complexity, Congress may not only increase the equity and efficacy of our huge retirement tax incentives and our tax system, but boost Americans’ confidence in their government.

October 19, 2021 in Articles, Non-Probate Assets | Permalink | Comments (0)

Saturday, October 9, 2021

The Next Step for Tax Policy Equity

Albert Feuer recently posted on SSRN his article entitled The Next Step for Tax Policy Equity. Here is the abstract of his article:

In September, the House of Representatives Ways and Means Committee released proposals requiring many employers without retirement plans to establish and automatically enroll employees in IRAs or simple 401(k) plans or in IRAs with the default contributions going to Roth IRAs. The proposals would also require a person whose employee benefit plans, Roth IRAs, and traditional IRAs have an aggregate balance greater than $10 million to withdraw at least 50% of the excess balance. Broadening those proposals to require Roth IRAs to comply with the same required minimum distribution (RMD) rules that now govern employee benefit plans and traditional IRAs, would better implement the common-sense policy of using tax incentives to encourage adequate retirement savings by focusing on retirement savings.

Roth IRAs and their participants are subject to the same RMD rules after the death of the IRA participant and the participant’s spouse, if any, as traditional IRAs and tax-advantaged pension and profit-sharing plans, including their Roth designated accounts,. Roth IRAs and their participants should also be subject to the same RMD rules during the life of the IRA participant and the IRA participant’s spouse, if any. An IRA violating those rules would lose its tax exemption, and a person failing to take a timely RMD would be subject to a 50% excise tax.

Subjecting Roth IRA participants to both the excess benefit distribution and the RMD rules would better limit the retirement tax incentives to retirement savings. Those with Mega-IRAs, such as Mr. Thiel’s multi-billion Roth IRA, could continue to receive tax incentives for reasonable-sized retirement accounts, but the tax incentives on any excess balances would be dramatically reduced. Participants with Roth or IRA accounts of any size would similarly be required to withdraw significant funds distributed during the expected life of the participant and the participant’s spouse, if any. This would permit Congress to adopt more equitable policies, such as making more funds available to encourage adequate retirement savings, such as increasing the matching savings credits to low-income tax payers who make contributions to tax-favored retirement plans above the Ways and Means proposed amount.

October 9, 2021 in Articles, Non-Probate Assets | Permalink | Comments (0)

Is This the Time to Harmonize the Required Minimum Distribution Rules?

Albert Feuer has recently posted his article entitled Is This the Time to Harmonize the Required Minimum Distribution Rules? on SSRN. Here is the abstract of his article:

In September, the House of Representatives Ways and Means Committee released proposals requiring many employers without retirement plans to establish and automatically enroll employees in IRAs with the default contributions going to Roth IRAs or in simple 401(k) plans. The proposals would also require a person whose employee benefit plans, Roth IRAs, and traditional IRAs have an aggregate balance in excess of $10 million to withdraw at least 50% of the excess balance. Broadening those proposals to require Roth IRAs to comply with the same required minimum distribution (RMD) rules that now govern employee benefit plans and traditional IRAs, would better implement the common-sense policy of using tax incentives to encourage adequate retirement savings by focusing on retirement savings.

Roth IRAs are subject to the same RMD rules, as traditional IRAs and tax-advantaged pension and profit-sharing plans, including their Roth designated accounts, after the death of the IRA participant and the participant’s spouse. They should also be subject to the same RMD rules during the life of the IRA participant and the IRA participant’s spouse, if any.

Subjecting Roth IRA participants to the excess benefit distribution and to the RMD rules would better limit retirement tax incentives to retirement savings. Those with Mega-IRAs, such as Mr. Thiel’s multi-billion Roth IRA, could continue to receive tax incentives for reasonable-sized retirement accounts, but the tax incentives on any excess balances would be dramatically reduced. Similarly, participants with Roth or IRA accounts of any size would be required to withdraw significant funds during the expected life of the participant and the participant’s spouse, if any. Such harmonization would permit Congress to make more funds available to encourage adequate retirement savings, such as providing larger savings credits to low-income tax payers who make contributions to tax-favored retirement plans than the Ways and Means proposal offers.

October 9, 2021 in Articles, Non-Probate Assets | Permalink | Comments (0)

Webinar: Tax & Estate Planning w/IRAs After the Secure Act

The following is from the program's announcement found here:

Tax and Estate Planning with IRAs after the Secure Act

3 NY CLE Credits: 3 Skills; Transitional and Non-transitional; 3 NJ CLE Credits: 3 General; 3 CPE Credits for CPAs (NY only)
 
Faculty:  Seymour Goldberg, Esq., CPA, MBA (Taxation), JD

Many taxpayers have accumulated a considerable amount of assets in their retirement accounts.  The Secure Act has created many new technical deadlines that must be followed in order to avoid IRS penalties. 

Tax planning and estate planning for your clients that have substantial retirement assets have become more important than ever.  You need to be aware of common errors that frequently take place.

This 3-credit CLE/CPE program includes:

  • Overview of the Retirement Distribution Rules under the Secure Act
  • Advantages of Trusts as IRA Beneficiary
  • Common Errors in Retirement Distribution Planning
  • Why many IRA beneficiary forms are defective
  • Statute of limitation issues including IRA penalties
  • Unintended Beneficiaries of Retirement Accounts or "My IRA is Going Where?"
  • And much more

ABOUT the INSTRUCTOR:  Seymour Goldberg, CPA, MBA (Taxation), JD is a senior partner in the law firm of Goldberg & Goldberg, P.C., Melville, New York. He has conducted over 100 continuing professional education programs for attorneys and CPAs in the area of IRA distributions and IRA compliance issues. He is a former IRS agent and IRS instructor. Mr. Goldberg is  the recipient of Outstanding Discussion Leader Awards from both the AICPA and the Foundation for Accounting Education.  His manuals written for the American Bar Association can be found in well over 100 law school libraries.  Two of his manuals cover IRA issues and IRS compliance issues involving IRAs.

Mr. Goldberg can be reached at 516-222-0422 or by email at info.goldbergira@gmail.com.

The New York and New Jersey CLE credits for this program will be issued by NYCLA 
The CPE credits* for this program will be issued by IRG Publications.
* CPA registrants must submit NYS CPA License Number after selecting registration option.

IRG Publications CPE details: 
Recommended CPE Credit Hours:  3 
Method of Presentation:  Webinar 
NY Sponsor:  IRG Publications 
Sponsor License No:  002963 
Subject area:  Taxation
Learning objective:  To  acquire knowledge involving tax planning and IRS compliance issues when dealing with IRA assets after the Secure Act
Level:  Intermediate 
Prerequisite:  Basic knowledge of taxation

Member (CLE Credit): $85
Non-member (CLE Credit): $105
CPA (CPE Credit ONLY): $75
JD/CPA Member (CLE & CPE Credit): $105
JD/CPA Non-Member (CLE & CPE Credit): $125

You must be signed in to register. If you do not have an account, you can create it for free.
For technical and account related issues, please contact us at dradjabov@nycla.org

October 9, 2021 in Conferences & CLE, Non-Probate Assets | Permalink | Comments (0)

Wednesday, September 8, 2021

Brother Had Standing Under Texas Slayer Statute To Seek Declaration Regarding Rights To Insurance Proceeds

Estate planningIn Lawrence v. Bailey, the Texas First District Court of Appeals addressed whether "a relative had standing under the Texas Insurance Code's Slayer Statute to obtain a declamatory judgment as to the disposition of life insurance proceeds." 

Steven Lawrence's wife LaQuita was named the primary beneficiary in his life insurance policy, which was issued by Hartford in January 2008. Their son Ross was named the contingent beneficiary. 

Steven and LaQuita were killed in their home in October 2013 and ross was indicted for capital murder for killing them. 

Hartford filed an interpleader petition in order to seek direction as to what to do with the life insurance funds. In the mean time, Hartford deposited the insurance proceeds with the registry of the court. 

Robert (Steven's brother) filed a tradition motion for summary judgment, in which he argued that based on the Texas slayer statute, he was entitled to the life insurance proceeds as a matter of law. 

The trial court ruled that it was granting the special exceptions and denying Robert's motion for summary judgment and set a trial for March of 2020. One month later, the administrator of Steven's Estate filed a "Motion to Close and Distribute Funds in Registry of the Court to the Estate of Steven Ross Lawrence, Deceased."

The trial court granted the administrator's motion and Robert filed a motion for new trial alleging that the trial court "spontaneously granted" the motion to distribute the interpleader funds to Steven's Estate, "without a hearing or notice" to him. 

Robert also asserted that "[t]his was a fundamental violation of Robert's right to due process." Robert asked the trial court to vacate the order awarding the insurance proceeds to Steven's Estate and grant him a new trial. The trial court denied the motion and Robert appealed. 

Under the Texas Insurance Code: 

A beneficiary of a life insurance policy or contract forfeits the beneficiary's interest in the policy or contract if the beneficiary is a principal or an accomplice in willfully bringing about the death of the insured.

The Texas appeals court determined that Robert had standing to obtain declaratory relief under the Texas slayer statute. The court determined that "the record also demonstrated that a real controversy exists between the parties regarding the insurance proceeds, since Hartford interpled funds indicating it anticipated rival claims to the funds." 

Despite the fact that the murder case against Ross had not been solved yet, the court found that the Texas Slayer Statute does not require that any criminal case relating to "whether the beneficiary willfully brought about the insured's death be resolved before the willfulness determination is made." 

See Brother Had Standing Under Texas Slayer Statute To Seek Declaration Regarding Rights To Insurance Proceeds, Probate Stars, August 30 2021. 

September 8, 2021 in Estate Administration, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0)