Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Inheritance tax’

Tax Court Provides Help for Estate Planning Using Gift Tax Valuation

Posted by William Byrnes on November 19, 2013


In the gift tax arena, the value assigned to the transferred property can often make or break your high-net-worth clients’ tax planning strategies, leading many clients to move conservatively through the valuation minefield.

Despite this, the newest strategy to emerge in the world of gift tax valuation can actually allow these wealthy clients to reduce their estate tax liability. Reversing course from a previous line of cases, the Tax Court recently blessed a cutting edge valuation strategy for lifetime gifts that can be used to reduce overall estate tax liability for these clients by simultaneously reducing the bite of the often-overlooked three-year bringback rule—a rule which can cause even the most carefully laid estate plans to fail.

Read William Byrnes and Robert Bloink’s analysis of the tax court case and the three-year bringback rule at > http://www.thinkadvisor.com/2013/10/29/tax-court-provides-help-for-estate-planning-using <

 

Posted in Estate Tax | Tagged: , , , , , , , , | Leave a Comment »

2 New Tax Facts Books Released

Posted by William Byrnes on August 23, 2013


National Underwriters published 2014 editions of Tax Facts books authored by William Byrnes and Robert Bloink of the graduate tax program.

2014 Tax Facts on Investments

2014 Tax Facts on Insurance & Employee Benefits

“We have included a new section on cross border employment and estate tax issues, captive insurance and alternative risk transfer, reverse mortgages, DOMA, as well as the previously expanding sections on ETFs and on precious metals & collectibles,” William Byrnes said.  “Moreover, we hope to soon announce the newest title of Tax Facts addressing entrepreneurs and their small business tax issues.” 

“Tax Facts Books and the Tax Facts Online portal have built strong following of many thousand of financial planning professionals.  I think financial planning professionals relate to National Underwriter’s approach of contextualizing client problems in a Question – Answer format.”

Both publications are now available as e-books, as an alternative or in combination with print.

Posted in book, Retirement Planning, Taxation, Wealth Management | Tagged: , , , , , , , , , | Leave a Comment »

Incidents of Ownership and Burden on the Estate

Posted by William Byrnes on August 12, 2013


Why is this Topic Important to Wealth Managers?   Discusses estate tax considerations in regards to life insurance policies.  Also, includes a detailed dialogue of the incidents of ownership concept. 

What do most wealth managers try to avoid when planning with life insurance and trusts?

That the Gross Estate for Estate Tax calculations would include the death benefit from the policy in the estate.[1]

What are some common ways to avoid this dilemma when using a trust and life insurance in regards to estate planning?[2]

The insured should never own the policy; “it should be owned from inception” by the trust or third party.

  • A trustee takes “all the actions to purchase the policy on the life of the insured”.
  • The trustee should be “authorized but not required to purchase insurance on the life of anyone whose life the trust’s beneficiaries have an insurable interest.”
  • The trust explicitly prohibits the insured from obtaining any interest whatsoever that the trust may purchase on the insured’s life.
  • The trust does not require, but rather permits the premium payments.
  • Trust is well funded, beyond that of one year of premium payments.
  • The trustee acts in the best interest of the beneficiaries.

A revisionary interest will give rise to incidence of ownership [3], which could include the insured’s right to; [4]

  • Cancel, assign or surrender the policy.
  • Obtain a loan on the cash value of the policy or pledge the policy as collateral for a loan.
  • Change the beneficiary, change contingent beneficiaries, change beneficiaries share of the proceeds.

When discussing incidents of ownership, naturally the 3 year rule should be further expounded.[5] “The 3-year ‘bring-back’ rule” is applicable, “with respect to dispositions of retained interests in property which otherwise would have been includable in the gross estate”.[6]  As discussed in AUS Main Libraries Section 8, C—Lifetime Gifts Of Insurance And Annuities-“Gifts Within Three Years Of Death, essentially, the rule as it applies to life insurance means that any policy transferred out of the estate of the insured within 3 years of his/her death, the policy proceeds are brought back into the gross estate for estate tax calculations.

It is generally accepted that “the trust should be established first, with a transfer of cash from the grantor to be used to pay the initial premium” or a few years of premiums.  “The trustee would then submit the formal application, with the trust as the original applicant and owner.”  Generally, the insured will “participate only to the extent of executing required health questionnaires and submitting to any required physical examination.”  Again the key is that the, “grantor/insured not have possessed at any time anything that might be deemed an incident of ownership with respect to the policy.” [7]

Posted in Estate Tax, Taxation | Tagged: , , , , , , , | Leave a Comment »

The ticking estate tax time bomb

Posted by William Byrnes on November 21, 2012


For your clients who have been playing the wait-and-see game in estate planning this year, the time for waiting is over.   Absent congressional action, the current $5.12 million exemption will revert to $1 million in less than three months, and the current 35% maximum estate tax rate will jump to 55%.  The entire article is available at http://www.lifehealthpro.com/2012/10/17/the-ticking-estate-tax-time-bomb-less-than-90-days

 

Posted in Estate Tax, Pensions, Retirement Planning, Taxation, Trusts, Wealth Management | Tagged: , , , | Leave a Comment »

More States Moving to Estate Tax Repeal

Posted by William Byrnes on November 18, 2011


In recent times, federal estate tax is receiving most of the attention. Nevertheless, most of the death tax activity affecting Americans occurs at the state level.

The reality is, fewer states (twenty-two plus D.C) currently have a “death tax”—referring collectively to estate and inheritance taxes. Recently,  a number of those states  increased their exemption amount to exclude a large majority of their residents from the tax. One state—Ohio—is on the verge of repealing its estate tax altogether.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).

Posted in Wealth Management | Tagged: , , , , , , , | 1 Comment »

Tax-Free Hedge Fund Investment: Private Placement Insurance

Posted by William Byrnes on April 9, 2011


Is hedge fund investment without capital gains or estate taxation possible for your high net worth clients?  Yes, through the medium of private placement life insurance (“PPLI”).   Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of topics relevant to estate planning for high net worth clients in Advisor’s Journal, see High Net Worth Clients: How to Find Them, How to Service Them (CC 10-07).

For in-depth analysis of state tax laws that are favorable for PPLI purposes, see Advisor’s Main Library: Estate Planning and the State Premium Tax.

 

Posted in Insurance, Retirement Planning, Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

2010 Estates: To Elect or Not to Elect

Posted by William Byrnes on January 24, 2011


Did Congress finally settle the estate tax confusion when it passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) on December 16? Although the estate tax treatment of estates of decedents dying in 2011 and 2012 is crystal clear, most of our clients will outlive the current estate tax regime, and we will be stuck in the same spot we were for the last half of 2010, wondering what the next year holds.

And what about the estates of decedents dying in 2010? Under the Tax Relief Act, estates of decedents dying in 2010 have a choice. They can elect to have the estate subjected to an estate tax regime with an exclusion amount of $5,000,000 (unified credit of $1,730,000) and an estate tax rate of 35 percent. Beneficiaries of these estates will receive the benefit of the stepped-up basis rules applicable prior to 2010.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).

For in-depth analysis of the estate tax, see Estate, Gift and GST Taxes.

Posted in Estate Tax | Tagged: , , , , , , , | Leave a Comment »

Obama Tax Cuts Analysis: Estate and Generation Skipping Transfer Tax

Posted by William Byrnes on January 18, 2011


The recent Obama Tax Cuts reinstated the estate and generation skipping transfer taxes effective for decedents dying and transfers made after December 31, 2009.  As was discussed earlier this week, the estate tax applicable exclusion amount is $5 million for decedents dying in calendar years after 2011, and the maximum estate tax rate is 35 percent. Furthermore, the generation skipping transfer tax exemption for decedents dying or gifts made after December 31, 2009, is equal to the applicable exclusion amount for estate tax purposes ($5 million for 2010).

For a general background on the Generation Skipping Transfer Tax, see our November 1st Blogticle entitled: Life Insurance and the Generation—Skipping Transfer Tax

Although technically the generation skipping transfer tax is applicable for 2010, the generation skipping transfer tax rate for transfers made during 2010 is zero percent. After this year, the generation skipping transfer tax rate equals the highest estate and gift tax rate in effect for such year (35 percent in 2011 and 2012), notwithstanding the exclusion amounts.

Moreover, under the new law, a recipient of property acquired from a decedent who dies after December 31, 2009, generally will receive fair market value basis (i.e., “step up” in basis). [1]

To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/obama-tax-cuts-analysis-estate-and-generation-skipping-transfer-tax/

Posted in Estate Tax | Tagged: , , , , , , , | Leave a Comment »

Does the New Estate Tax Make the Bypass Trust Obsolete?

Posted by William Byrnes on January 17, 2011


President Obama’s tax compromise introduces a new estate tax concept for 2011 and 2012, the deceased spouse unused exclusion amount (DSUEA).  Essentially, the DSUEA allows a surviving spouse to utilize the unused exclusion amount of the first spouse to die.  The new law raises an important planning question: Is the bypass (credit shelter) trust obsolete as an estate planning device? Also: Do existing bypass trusts need to be amended in light of the new law?

In general, under the new estate tax, an estate’s exclusion amount, referred to as its applicable exclusion amount, is the sum of two components: the basic exclusion amount and the DSUEA. The basic exclusion amount for estates of decedents dying in 2011 and 2012 is $5 million. The second part of the equation, the DSUEA, is the amount of the first-to-die spouse’s exclusion amount that is not used by the that spouse’s estate. Note that a surviving spouse’s DSUEA is equal to the unused exclusion amount of the surviving spouse’s last deceased spouse.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).

For in-depth analysis of the estate tax, see Advisor’s Main Library: Estate, Gift and GST Taxes.

Posted in Estate Tax | Tagged: , , , , , , , | Leave a Comment »

The Future of Estate Planning under the Obama Tax Cuts

Posted by William Byrnes on January 11, 2011


Why is this Topic Important to Wealth Managers? Presents discussion on the effect of the Obama Tax Cuts on the Estate Planning industry in general.  Also presents analysis regarding the estate tax burden on taxpayers.

The quintessential planning tool that many wealth managers relied on could easily become a thing of the past.  In other words, the Obama Tax cuts are creating concern for some wealth managers who sold life insurance to cover the tax of an estate at the death of the decedent. Sections 301-304 of the new law reinstated the estate tax, but nevertheless, created large exclusions, essentially removing the need for many to cover the estate tax burden with the purchase of life insurance.

Specifically, the applicable estate tax exclusion amount is $5 million under the law (and is indexed for inflation) for decedents dying in calendar years starting in 2011.  Married individuals’ will see a total exclusion of $10 million.  Furthermore, the new law reinstates the maximum estate tax rate of 35 percent.  To read this article excerpted above, access www.AdvisorFYI.com

 

Posted in Estate Tax | Tagged: , , , , , , , | Leave a Comment »

GRAT Strategy for Avoiding Gift on High Premium Payments May Be Coming to a Close

Posted by William Byrnes on October 18, 2010


Life insurance-based estate planning strategies for high-net-worth clients with estate liquidity issues run into the problem that premiums may be so high as to exhaust the client’s annual gift tax exclusion and lifetime exemption, resulting in unwanted gift tax exposure.  One way advanced planners have dealt with the gift tax problem of high premiums is through the use of a grantor retained annuity trust (GRAT).  But the U.S. House recently passed a bill—H.R.4849, the Small Business and Infrastructure Jobs Tax Act of 2010—that would severely curtail the use of GRATs, so the utility of this technique may soon be eliminated.

To illustrate this technique while it remains open, let’s assume you have an unmarried client, Max, who owns a number of restaurant franchises. His estate will be worth about $12 million, most of which is tied up in his franchises and other illiquid investments. Max’s estate will need around $6 million in liquid death benefit to cover the pending estate tax liability.  Read today’s article in your Advisor’s Journal at GRAT Strategy (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of the topic of the use of GRATs, see Advisor’s Main Library Section 4. Estate Planning Techniques J—Grantor Retained Annuity Trusts

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

Posted in Estate Tax, Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

 
%d bloggers like this: