Is the federal estate tax law going to change or be abolished under the Trump administration? Time will tell. One thing is certain: tax laws may change but the litigious nature of our society is not going away. Asset protection planning is a key motivator for many estate planning clients. We hear scenarios over and over again in which a client has injured someone in an accident, is being sued for malpractice, is involved in a business dispute, owns rental property where someone was injured, or has a child in the middle of a divorce and custody dispute. What can you do to protect your or your family's assets if you become one of those unfortunate people?Having this conversation in the wake of an incident or accident when a lawsuit is looming is less than ideal. Steps taken only then and deliberately intended to frustrate a known creditor almost certainly will be challenged as a fraudulent transfer and, if successful, will … [Read more...] about Asset Protection Planning Steps You Should Consider Now
Transfer assets to trust
The rapidly changing political climate continues to create estate, gift and generation-skipping transfer (GST) tax planning instability. Just this year, the Obama administration made a number of proposals that would substantially reduce the opportunities to engage in tax efficient estate planning. In addition, at the end of 2012, unless the law is changed, the favorable estate, gift and GST tax rates and the amounts sheltered from those taxes under the Tax Relief Act of 2010 would end and, as indicated below, less favorable ones reinstated. We encourage our clients to undertake an immediate review of their estate plans to determine if it is appropriate to take advantage of the opportunities under current law before they may expire.This GT Alert provides a brief overview of the estate planning techniques affected by the potential changes in the law.Estate, Gift and Generation-Skipping Tax Rates and ExemptionsIn 2012, the maximum Federal estate, gift and GST tax rates are … [Read more...] about Many Estate Planning Opportunities May End in 2012 – The Time to Act is Now
On March 31, 2014, the Governor of New York State signed into law the New York State Budget for 2014-2015 (the Budget) effective April 1, 2014. It includes the most significant changes to the New York estate tax law in more than a decade. The Budget incorporates recommendations proposed in December 2013 by the New York State Tax Reform and Fairness Commission and the New York State Tax Relief Commission (the Commissions) after a comprehensive review of New York State’s tax structure. This Alert summarizes those aspects of the Budget that are most relevant to New York resident clients and estate planners, including changes to the New York estate tax and to the income taxation of New York trusts.For 2011 and thereafter, the federal estate tax exemption is $5,000,000, adjusted for inflation. The inflation adjusted amount for 2014 is $5,340,000. The New York State estate tax exemption, however, has been at $1,000,000 since February 2000. The Commissions recognized that the New … [Read more...] about New York State – 2014-2015 Budget Affecting Trusts and Estates
Trusts have historically been used for protection from estate taxes. Now, for most people, protection from the estate tax is not necessary, but one reason (there are many other reasons) trusts may still be needed to protect assets for descendants in the event of a divorce of a descendant.Most likely, your children will get married, and although everyone wants to believe that their children are getting married for life, that is not always the ending. Many states treat the income and appreciation of separate property held by a married child as deemed marital property for purpose of divorce.In at least three states (Colorado, Oregon and Massachusetts), the appreciation of property that is held in an irrevocable trust and is not subject to divestment may be deemed to be marital property. In Arizona, the courts have held that the appreciation on assets that increase in value because of efforts of a spouse during marriage (“sweat equity”) are deemed to be marital property. The … [Read more...] about If Any Person Gives Substantial Assets to Their Children (Whether Held in Trust or Not)…Beware, or at Least Be Aware!
On December 21, 2011, the U.S. Internal Revenue Service (IRS) issued Notice 2012-6, which provides welcome relief for U.S. employers with qualified employee retirement plans that cover Puerto Rico employees. Notice 2012-6 provides that the IRS will extend the deadline for employers sponsoring plans that are tax-qualified only in Puerto Rico (ERISA Section 1022(i)(1) Plans) to continue to pool assets with U.S.-qualified plans in group and master trusts described in Revenue Ruling 81-100 (81-100 group trusts) until further notice, provided the plan was participating in the trust as of January 10, 2011, or holds assets that had been held by a qualified plan immediately prior to the transfer of those assets to an ERISA Section 1022(i)(1) Plan pursuant to a spin-off from a U.S.-qualified plan under Revenue Ruling 2008-40.Notice 2012-6 also extends the deadline for sponsors of retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) to spin off and … [Read more...] about IRS Extends Transition Relief for Puerto Rico Qualified Plans to Participate in U.S. Group Trusts and Deadline to Transfer Assets
In our previous edition of alternatives for financing education, we discussed outright gifts as well as Section 2503(e) gifts. In this edition, we'll talk about Section 2503(c) Trusts and Crummey Trusts.For parents who wish to establish a trust account for a child’s education in a way that will not generate any gift tax consequences, there are two alternatives. The first is a so-called “2503(c) trust.” Section 2503(c) of the Internal Revenue Code specifically allows a trust to be established for a child under age 21 which will qualify for annual exclusion treatment.BenefitsThe parent can retain complete control of the trust property, at least until the child reaches age 21. There is no need for “Crummey” withdrawal notices (discussed below) and, to the extent the trust is maintained for college costs only, virtually all the trust assets may be gone by the time the beneficiary attains age 21.DrawbacksThe biggest drawback is that upon the child reaching age … [Read more...] about Alternatives for Financing Education: Section 2503(c) Trusts and Crummey Trusts
Parents want what’s best for their children and will go to great lengths to see them succeed and help plan for their futures. Many parents have turned to trusts to provide their children with more sophisticated tax and estate planning to help them financially down the road. Generally, parents look forward to the day when they can see their children married, settled in a career, and raising a family of their own. However, there are no guarantees that their lives will remain here in Canada. Everyday Canadians move to the US, whether it be for work, studies or maybe to follow their potential spouse. Whatever the reason, these Canadians could become US residents or US citizens, an issue which must be addressed if they are beneficiaries of a Canadian trust. For clarity, the issues would apply to any trust that is foreign to the US, however we will be using a Canadian trust as an example throughout our discussion. Whether the beneficiary of a Canadian trust was a US citizen or … [Read more...] about U.S. Citizen or U.S. Resident Children Beware – “Trust” No One Re: Taxation of Trust Assets
The Bankruptcy Appellate Panel for the 9th Circuit in Chantel v. Pierce, 2015 Bankr. Lexis 2174, recently explained what can constitute a sham trust to enable creditors to reach assets transferred to that trust. A California trust had been created with the Chantels as co-trustees. After a judgment had been entered against them, they filed a Chapter 13 bankruptcy, which was converted to a Chapter 7. In their schedules, the Chantels claimed they owned no real property and had not made any transfers to their self-settled trust within the previous 10 years. The Chantels did claim that they leased farmland from the Trust, but stated they had no other income and did not claim any income from the trust.The Bankruptcy Trustee brought an adversary complaint alleging that the trust was a sham and that the Chantels had fraudulently transferred assets to the trust. At trial, the Chantels admitted that a) a group of people who could not be identified had approached the Chantels about … [Read more...] about Seizing Assets Hidden In A Sham Trust
The Tax Relief Act of 2010 made significant changes to the gift, estate and generation-skipping transfer tax regimes by increasing the amount each individual can give without incurring tax from $1 million to $5 million. The increase was not permanent however, and rumor has it that it may be in jeopardy. To avoid any risk, those who have decided to use their full exemptions should do so no later than December 31, 2011, and, if feasible, November 22.The Tax Relief Act of 2010 made significant beneficial changes to the gift, estate and generation-skipping transfer tax regimes. Most important, it increased the amount each individual can give without incurring gift tax and generation-skipping transfer tax to $5 million from $1 million. For married individuals, the combined exemptions can be as high as $10 million. The 2010 increase was not a permanent one. Congress scheduled the exemption to return to $1 million after the end … [Read more...] about Is the $5 Million Gift Tax Exempt Amount About to End?
Due to recent changes in North Carolina law, irrevocable trusts are no longer “set in stone.” Irrevocable trusts can now be rewritten for a variety of reasons and in a variety of methods or even terminated. When the terms of an irrevocable trust become troublesome, a beneficiary or trustee of the trust will have the option to remedy a defective or unwanted trust provision or terminate the trust. Sometimes the best way to fix the trust is simply to replace it. When a beneficiary or trustee experiences trouble in the application of trust terms or becomes aware that the terms are deficient in some respect, the trustee or beneficiary should consider whether tools such as decanting or trust modification may allow trust assets to be administered under different and improved trust terms. When these options are available, they may provide relatively simple, cost-effective ways to modernize an old trust, change a trust’s administrative provisions, improve clarity or correct … [Read more...] about In North Carolina Irrevocable Trusts May No Longer Be Irrevocable