Trusts & Estates

Wealthy Californians (and their Children) Can Breathe a Sigh of Relief

Calculator with wooden house and coins stack and pen on wood table. Property investment and house mortgage financial concept

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By Joyce Feuille

Wealthy Californians, and more importantly, their children and grandchildren, can pop that champagne. The bill that would have imposed a California gift, estate, and generation skipping transfer tax appears to be dead – – at least for now. It will not get a floor vote in the California Legislature.  Absent a floor vote, the California bill will not obtain the required approval of the California Legislature to put it on the November 2020 ballot. (more…)

California Estate Tax: Gone Today, Here Tomorrow?

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By Joyce Feuille

California has no estate tax, but that could change in the near future. California State Senator Scott Wiener recently introduced a bill which would impose gift, estate, and generation-skipping transfer tax on transfers during life and at death after December 31, 2020.

California law requires that any law imposing transfer taxes must be approved by the voters. This means that, if the California Legislature approves the California bill, it will be put before the voters at the November 2020 election. (more…)

IRS Announces 2019 Exemption Amounts and Confirms Increased Exemption is “Use It or Lose It”

By Jeffrey K. Eisen

Just before Thanksgiving, IRS made two key pronouncements concerning the estate tax and gift tax.

1.    In Revenue Procedure 2018-57, the IRS announced that for gifts made in 2019 or deaths occurring in 2019, the combined gift tax/estate tax exemption amount will be $11,400,000 per person (or $22,800,000 per couple with proper planning). This is up from $11,180,000 per person in 2018 (or $22,360,000 per couple).  These exemption amounts also apply to the generation-skipping transfer tax. (more…)

Is Everyone Now an Employee in California?

By Jeffrey Davine

On April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County.  It is likely that this case will drastically alter the landscape in California as to how workers are classified.  From a tax perspective, the result could be significantly increased costs and administrative burdens for businesses operating in California.

Worker Classification.
For tax purposes, workers are divided into two categories- employees and independent contractors.  The tax withholding and reporting obligations with respect to each category of worker are substantially different and significant dollars can turn on how a worker is classified. (more…)

How Does the Suspension of Miscellaneous Itemized Deductions Impact Your Trust or Estate?

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By Jeffrey Eisen and Daniel Cousineau

The Tax Cuts and Jobs Act suspends miscellaneous itemized deductions (i.e., those deductions subject to a 2% floor) from 2018 through 2025, creating an incentive for taxpayers to try and characterize their expenses as giving rise to itemized deductions rather than miscellaneous itemized deductions. General discussion of the new tax law has overlooked this repeal’s impact on estates and non-grantor trusts (i.e., most irrevocable trusts), including a time-sensitive planning opportunity.

Prior to the new legislation, an individual could claim miscellaneous itemized deductions for certain types of expenses that were not specifically enumerated in Internal Revenue Code Section 67. These expenses were not deductible until they exceeded 2% of an individual’s adjusted gross income. Expenses specifically enumerated in Section 67 were itemized deductions not subject to the same 2% floor, making them more attractive to taxpayers than miscellaneous itemized deductions. The new legislation suspends miscellaneous itemized deductions but keeps itemized deductions (subject to certain other restrictions not relevant here). (more…)

#MeToo Can Be #Costly

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By Jeffrey Davine

General Rule- Deduction for Settlement Payments.

If an employer settles a claim made by an employee (or former employee), the employer may generally claim a deduction for the amount that is paid to the employee to resolve his/her claims.  The expense is treated as an ordinary and necessary business expense and a deduction may be claimed pursuant to Section 162(a) of the Internal Revenue Code.

For example, if an employer pays an employee $25,000 to settle the employee’s claims for back wages, emotional distress, and age discrimination, the employer may deduct the $25,000 on its tax return (the employer’s tax reporting obligations with respect to the $25,000 payment and how the payment should be allocated among the claims made by the employee are topics for a different article). (more…)

The Tax Cuts and Jobs Act

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The Tax Cuts and Jobs Act released by the Conference Committee, that resolved differences in the versions of the Act passed by the Senate and the House of Representatives, is almost certain to be signed into law by the President.  You can read our preliminary summary of this far-reaching tax legislation here, but these are the highlights:

Individuals

  • Tax brackets are adjusted, with the maximum rate reduced from 39.6% to 37%.
  • The mortgage interest deduction on a principal residence is limited to debt of $750,000 (down from $1 million).
  • Several itemized deductions are reduced or eliminated, including state and local taxes (“SALT”) in excess of $10,000.
  • The standard deduction is doubled to $12,000 for single individuals and $24,000 for joint filers.
    More on provisions affecting individuals

Estate and Gift Tax (more…)

Year-End Tax Planning for College Football Fans

By David Wheeler Newman

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Fans of college athletics may have heard something about tax legislation barreling through Congress this month, and didn’t pay much attention since it sounded like boring stuff that only meant something to big tech companies stashing their billions overseas.  But buried in the 500 pages of the legislation that has now passed both chambers is a year-end tax planning opportunity for sports fans.  Or, more precisely, a tax break that has been available to sports fans for over thirty years will be eliminated starting in 2018. (more…)

IRS Announces Key Estate and Gift Tax Exemptions for 2018

By Jeffrey K. Eisen

On October 19, IRS issued Revenue Procedure 2017-58, announcing inflation adjustments for 2018 for dozens of important figures across the Internal Revenue Code, including the following two key numbers regarding the estate tax, gift tax and generation-skipping transfer (GST) tax:

1.       Gift Tax Annual Exclusion Increases to $15,000. For gifts made in 2018, the gift tax annual exclusion will be $15,000.  This is the amount an individual can give to as many donees as desired in one year without using any of the donor’s estate and gift tax exemption.  The best way to think about this is that a person can stand on the street corner and give $15,000 to every person who passes by, and the donor will not use any of his or her estate and gift tax exemption.

This also means that a married couple can give each donee up to $30,000 in 2018 without using either spouse’s estate and gift tax exemption amount.

The annual exclusion had been stuck at $14,000 since 2013.  Even though the annual exclusion is indexed for inflation, under the Congressional version of rounding (not the one you learned in elementary school), the annual exclusion does not get rounded up to the nearest $1,000, it only gets rounded down.  Thus, the inflation adjustment must actually push the annual exclusion past the next $1,000, which explains how it can take five years for the annual exclusion to increase. (more…)

The White House Framework for Tax Legislation

White House

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By David Wheeler Newman

On September 27, the White House released a document called the “Unified Framework for Fixing Our Broken Tax Code,” containing an outline prepared by the administration plus the senior Republican members of the tax-writing committees of Congress. The Framework is far less detailed than previous proposals for structural tax reform, but is instead described as a “template” which the authors intend for Congress to use to prepare actual legislation. This template calls for new tax rates for individuals and businesses and would create a territorial international tax system.  Some key headlines:

Estate Tax.  The Framework calls for a repeal of the estate tax.  In announcing the tax plan, the President said that repeal would overwhelmingly help farmers and small business owners.  However, most farm families are not actually affected by the estate tax, which only applies to estates valued at over $5.49 million.  The nonpartisan Tax Policy Center projects that estate tax of $19.95 billion will arise from Americans dying in 2017, of which about $30 million, or 00.15%, will be paid by the estates of farmers and small business owners.

The Framework would also repeal the generation skipping transfer tax. The proposal is silent on the gift tax. (more…)