Tax and Trusts & Estates

Top Six Reasons NOT to Have an Estate Plan

09.17.15 l Blog l imgWritten By: S. Eva Wolf

Tired of bossy blogs telling you to get an estate plan?  Good advice is boring.  Your life is exciting and should have a dramatic ending.  And you can have it.  All you have to do is nothing.  So the next time someone tells you that you need an estate plan, tell them:

  1. Annie is your favorite musical. When your children misbehave you daydream about the day when they will be forced to live in a grubby orphanage and be abused by a cruel, alcoholic supervisor.  And, when your children act like angels, you are comforted by the certainty that in time a billionaire will rescue them from the orphanage, and they will live happily ever after.
  2. You’ve slaved away at a job that you hate for decades to amass great wealth, and no lawyer is going to swindle you out of ten grand (or less) to protect it. If you spent that kind of money on something as practical as an estate plan, you might have to spend a little less on designer handbags or forego a mid-life crisis Maserati in favor of a mid-life crisis Corvette.
  3. Your favorite uncle is Sam. You’re thrilled that he could inherit your assets when you die and use them to fund a manned mission to Mars.
  4. Two words: Terri Schiavo. Your parents and spouse always hated each other, and being in a persistent vegetative state without an advance health care directive will give them an opportunity to work out their differences with the assistance of all three branches of government.
  5. It’s important that your children be wild and carefree. If they inherit your wealth when they turn 18 and blow it all on sports cars, parties, and rehab, you have done your job as a parent.
  6. You are obsessed with Law and Order. Death is your only chance to star in a courtroom drama (unless, of course, you end up in a coma first).  You’re hoping your loved ones will fight over family heirlooms, your secret child will come forward, and a family feud will ensue, lasting hundreds of years – all because of you!

 

IRS Gives Surviving Spouses a Second (or Third) Bite at the Portability Apple

By Jeffrey Eisen

“Portability” is the ability of a surviving spouse to use not only his or her own estate tax exemption, but also some or all of the exemption of the first spouse to die, as long as the first spouse died in 2011 or later.  With the estate tax exemption for 2017 at $5,490,000, this can allow estates of nearly $11,000,000 to escape estate tax. While a full discussion of portability is beyond the scope of this post, suffice it to say that portability can save the day in one or more of these situations: if proper estate planning has not been done, if life insurance, IRAs or retirement plans left to the surviving spouse constitute a very large portion of a couple’s assets, or if a couple’s assets of any type are worth near the value of one exemption but less than both (e.g., $4,500,000 to $10,500,000).

The catch is that if the deceased spouse’s assets are worth less than his or her exemption amount, the deceased spouse’s executor has to file a federal estate tax return (Form 706) for the deceased spouse to “claim” the deceased spouse’s unused exemption and thus invoke “portability.”   This is the direct opposite of the normal rule that if a decedent’s estate is worth less than the estate tax exemption amount (after taking lifetime gifts into account), no estate tax return filing is necessary.  But if the deceased spouse’s executor does not file a timely estate tax return for the deceased spouse (nine months after the date of death, or an additional six months thereafter if a request for an extension was properly filed by the nine month deadline), the ability to use portability is permanently lost. (more…)

California State Board of Equalization Gutted

By Jeffrey D. Davine

The Taxpayer Transparency and Fairness Act of 2017

Established by the California Constitution in 1879, the California State Board of Equalization (the “BOE”) has been the agency charged with administering most of the taxes imposed by California.  In addition, the BOE was the tribunal whose function was to decide taxpayer appeals of decisions by the California Franchise Tax Board (the “FTB”) concerning income tax matters.  All of this is about to change with the passage of AB 102.  AB 102, which is named the “Taxpayer Transparency and Fairness Act of 2017” (the “Act”), was signed into law by Governor Brown on June 27th.  The Act effectively cuts the legs out from underneath the BOE.

Background

In March of this year, the California Department of Finance issued a derisive report asserting that the BOE misallocated tax revenues, used BOE employees to assist elected BOE members with political activities, and attempted to improperly affect BOE audits.  In response, and at the urging of the Governor, the Act was passed by the California Legislature. (more…)

Can Charitable Remainder Trusts Avoid the Self-Dealing Rules?

By: David Wheeler Newman

A pillar of the conventional wisdom of planning with charitable remainder trusts (CRTs) is that these very flexible split-interest trusts are subject to the private foundation excise tax on self-dealing transactions.  But a recent IRS ruling has shaken that pillar and questioned the conventional wisdom.

Some (but not all) of the private foundation excise taxes apply to CRTs pursuant to Internal Revenue Code section 4947(a)(2), which provides that in the case of a trust which is not exempt under Code section 501(a) (i.e. a tax-exempt organization), not all of the unexpired interests which are devoted to one or more charitable purposes (i.e. a split-interest trust like a CRT) and which has amounts in trust for which a charitable deduction was allowed, Code section 4941 (excise tax on self-dealing) shall apply as if such trust were a private foundation.

In Private Letter Ruling 201713003, the grantor established a charitable remainder unitrust, but did not claim a charitable income tax deduction under section 170.  The IRS ruled that because no charitable deduction was allowed, section 4947(a)(2) does not apply and the CRT is therefore not subject to any private foundation excise taxes, including self-dealing.

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Is the Border Tax Crossing the Line?

By Susan Kohn Ross and Jeffrey D. Davine

It is far too early to discern the extent of any change to the relationship between the U.S. and Mexico in the face of the oft-repeated insistence of the Trump campaign to “renegotiate” NAFTA, a promise that was reiterated once Mr. Trump was sworn into office. Following a prickly meeting last month between President Trump and Mexican President Enrique Peña Nieto, accounts from Mexico report the government as having started consultations with its business community, a process described as taking 90 days. The results of those consultations and how they might impact any further discussions with the U.S. remain to be seen. Similarly, President Trump and Canadian Prime Minister Justin Trudeau also met last month, but under somewhat more cordial circumstances. Again, next steps with Canada remain an open question. However, the overarching theme is the oft-repeated promise from the Trump Administration that a border tax will be imposed.  While nothing concrete has been proposed to date, how such a border tax might work has understandably caused varying levels of concern among American companies. Given there is nothing concrete to examine, in this Alert, we seek to provide a brief explanation of the concepts being bandied about. (more…)

Understanding UPMIFA: Delegation of Management and Investment of Endowment Funds

By David Wheeler Newman

The Uniform Prudent Management of Institutional Funds Act (UPMIFA or the Act) was adopted in 2006 by the National Conference of Commissioners on Uniform State Laws, as the successor to the Uniform Management of Institutional Funds Act (UMIFA), and has (on 1/1/2017) been enacted in every state except Pennsylvania. UPMIFA provides guidance and authority to charitable organizations concerning the management and investment of charitable funds and for endowment spending.

prior post focused on UPMIFA rules for endowments held by charitable organizations, including standards for determining the annual spending from those funds, while this post will address UPMIFA rules for the delegation of management and investment functions.

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Data Breaches: An Employer’s Duty to Protect Employees’ Personal Information

By Aaron Wais

Recently, there has been much discussion about the Superior Court of Pennsylvania’s ruling in Dittman v. UPMC, which affirmed a lower court’s order dismissing an employee class action against their employer over a data breach.  While this was a significant victory for employers, non-Pennsylvania employers should temper their enthusiasm.  As one recent federal court decision in California makes clear, the reasoning of Dittman may not extend far beyond, if at all, the borders of Pennsylvania.  Moreover, regardless of their outcomes, both cases also reinforce the need for employers to maintain legally compliant, written policies for safeguarding private information and responding to data breaches.

In Dittman, a data breach resulted in the theft of the personal information (e.g., names, birth dates, social security numbers, banking information) of approximately 62,000 UMPC current and former employees.  The information was used to file fraudulent tax returns and steal tax refunds from certain employees.

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Estate Planning – When the Only Certainty is Unpredictability

By Allan B. Cutrow and Jeffrey K. Eisen

 

Donald Trump is now the President, and both chambers of Congress are under Republican control. Thus, we appear to be poised for potentially substantial changes in the estate tax, gift tax, generation-skipping transfer tax, and income tax laws. However, as with all other aspects of political life in America today, it is impossible to predict at this time what ultimate changes will materialize. The only clear thing is the lack of clarity.

  1. Is the Estate Tax History? First, there is the perpetual Republican promise, supported by the President, of “repealing” the estate tax. Last time the estate tax was “repealed” (in 2001), it really meant eight years of gradually increased exemptions and gradually decreased rates, followed by one year of repeal (2010), followed by the return of the estate tax with even greater exemptions and lower rates, which is where we are today. Will this happen again? Will the estate tax just disappear retroactive to 1/1/17 or perhaps on 1/1/18? Will deficit hawks decide that even the relatively tiny revenue generated by the estate tax is worth keeping to avoid a political fight with Democrats? (more…)

Understanding UPMIFA: Important Endowment Concepts

By David Wheeler Newman

The Uniform Prudent Management of Institutional Funds Act (“UPMIFA” or “the Act”) was adopted in 2006 by the National Conference of Commissioners on Uniform State Laws, as the successor to the Uniform Management of Institutional Funds Act (UMIFA), and has (at 1/1/2017) been enacted in every state except Pennsylvania. UPMIFA provides guidance and authority to charitable organizations concerning the management and investment of charitable funds and for endowment spending.

UPMIFA contains rules and standards for their application across three broad areas of importance to charitable organizations, members of their fiduciary boards, and their advisers, if those organizations hold restricted funds including endowment. This post focuses on endowment, and future posts will address UPMIFA rules for the delegation of management and investment functions, and for the release or modification of restrictions contained in gift instruments. (more…)

iWill or iWon’t

By Allan Cutrow and Emily Evitt

digital safety concept padlock in electronic environment

Photo credit: iStock.com/the-lightwriter

Ever wondered what will happen to your Facebook page when you die? The California Legislature has recently weighed in. Effective as of January 1, 2017, California will have its first law to specifically address the handling of your “digital assets” after your death. The Revised Fiduciary Access to Digital Assets Act will determine who, if anyone, can access your digital assets, such as social media accounts, online gaming accounts and music accounts after your death. Under the new law, the custodian of digital assets – such as Facebook, Google, or Apple – must provide a fiduciary access to a deceased individual’s digital assets as the decedent previously directed. The Act sets up a three-tiered approach, which works as follows: (more…)