Why Copyrights and Trusts Don’t Always Mix Well

January 20, 2012 By

Literary rightsHere’s a recent article of mine about the estate planning aspects of transferring copyrights to literary and artistic works. I wrote it for a readership of trusts & estates lawyers, CPAs, and financial planners who get questions about copyrights, making gifts of them during life and at death, and how the heirs of authors and artists can often terminate and reclaim a grant of rights that was made during an author’s lifetime.

You can read the whole thing, but the nugget of wisdom is this: if you intend to make a gift of literary rights when you die, do it in your will (which can be a pour-over will), and not by transferring them to your living trust while you’re alive.

Filed Under: Gift Planning, Trusts

2012 Changes in the Estate & Gift Tax Laws

January 4, 2012 By

Calendar pageThis is the first January in many years in which I haven’t had to revise my site extensively to outline and integrate all the changes in estate and gift tax laws, exemptions and rates for the New Year.

So far, there are only two changes of interest to that small group of regular people – non-lawyers and non-CPAs – who play close attention to this stuff.

Donations from IRAs to Charities – The first notable change is the expiration, on December 31, 2011, of the opportunity to donate assets directly from retirement plans such as IRAs, 401Ks, and 403Bs, to charity. I’ve updated an older post on that topic, below this one in the News stack, to discuss that change.

Increase in the Unified Exemption – The second is an increase for calendar year 2012 in the unified federal estate tax, gift tax, and Generation-Skipping Transfer Tax exemption amount. It goes from a round $5 million to an inflation-adjusted $5,120,000 per person. That might not sound like a big thing, but it could save the estate of a person who died on January 1, 2012 about $42,000 in federal estate taxes compared to what would have been owed had he died on December 31, 2011. And even more if that $120,000 was earmarked for grandchildren and would have been subject to GST tax had he died a few hours earlier.

Unfortunately, next January’s website edits probably will not be as simple. Congress and this president, or the next one, will almost certainly be making some changes. And at this point, it’s hard to predict what those changes might comprise. But we know one thing – if they do nothing, the exemption amount will drop to $1 million. And if that happens, a whole lot of folks in Northern Virginia will suddenly find themselves with potentially taxable estates.

Filed Under: Estate Taxes, Gift Taxes

Tax-Free IRA Charitable Rollovers Expired on December 31, 2011

January 3, 2012 By

Donation can and heartDuring 2010 and 2011, individuals age 70-1/2 or older were eligible to make donations of up to $100,000 directly from their individual retirement accounts (IRAs) to benefit public charities.

Although they received no charitable deduction for such transfers, they didn’t have to report the distribution as taxable income, either. Result: zero tax. And, such a distribution counted toward fulfilling their required minimum distributions (MDRs) for those years.

But Congress didn’t act in time to extend them, so they’re gone for now. But as you might imagine, just about every nonprofit lobbyist in Washington, D.C. and nationwide would like to see charitable rollovers extended for another few years – or even better, permanently. So if you were thinking about making a charitable gift from your IRA but never got around to it in 2011, keep an eye on the financial news (and this site) to see if the program gets reinstated.

(If you hear conflicting rumors, and can’t get a straight answer from a web search or a phone call, by all means contact me via phone, or use the form in the sidebar. I’ll get you the straight scoop.)

 

Filed Under: Charitable Planning

How Estate Taxes Hurt the Poor

October 29, 2011 By

Top HatOver the years, many clients have walked into my office with the goal (usually among several others) of eliminating, or at least minimizing, their family’s exposure to estate taxes.

And I’ve been pleased to help them do that (and to charge reasonable fees for my help). But although minimizing estate taxes is important, it’s not the only reason you should do comprehensive estate planning, and for most of my clients, it’s not the most important reason they do it. (See more on some of the other reasons here and here.)

So, although my view on the matter places me in a distinct minority of trusts and estates lawyers, I wouldn’t be the least bit disappointed if we were to eliminate death taxes entirely. Besides the general “micro” unfairness to American families of re-taxing, at each generation, family wealth that has already been taxed when it was earned, federal and state death taxes are harmful on the “macro” level as well.

In a Wall Street Journal op-ed from October 2011, professor and author Steven Landsburg explains How the Death Tax Hurts The Poor by encouraging near-term spending rather than long-term investment:

We’re all living on other people’s inheritances and investments in our economy. Just five generations ago, the average American worked 60 hours a week, took no vacations, and earned less than the modern-day equivalent of $6,000 a year. He or she rarely traveled more than a few miles from home, had no central heat or running water, and died at age 50.

Today we earn more and work less because of better factories, more powerful machinery, and far more advanced technology. We work less around the house because of self-cleaning ovens and frost-free refrigerators and automatic washing machines. We travel far from home in our trains, planes and cars, or we access the world virtually without ever leaving our climate-controlled living rooms. We live longer because of better hospitals, better medicines, better research institutions, and better trained doctors.

Where did all that stuff—all those factories and computers and research towers—come from? It was constructed from resources and capital that became available to investors because somebody—perhaps some “rich” person—was being frugal. Often, that frugality was motivated by the desire to leave a bequest. Absent the death tax, we’d have had even more frugality and more resources available for the kind of investments that benefit all of us….

Check out the whole article, and keep in in mind as the next election approaches and the candidates start discussing their plans to reform the tax system. (If you like the article, you might also like Professor Landsburg’s book.)

Filed Under: Estate Taxes, Other Authors

How Low Interest Rates Can Cut Your Tax Bill

October 14, 2011 By

Alexander HamiltonI often point out tax-saving opportunities created by our current low interest rates, and an October 1, 2011 Wall Street Journal article does a nice job of making the point again. In How Low Rates Can Cut Your Tax Bill,  Tax Report columnist Laura Saunders points out that our current low interest rates (a Section 7520 rate of only 1.6% in December 2011) add to the attractiveness of several mainstream planning opportunities:

  • Loans to family members – the applicable federal rate for long-term loans (more than 9 years) is only 2.80% in December 2011. The author gives an example of a $100,000 loan from parents to a child and his spouse to buy a home: the parents could either collect annual interest of $2,950 or they could forgive the loan (up to $52,000 of debt forgiveness per year with no gift tax liability) in whole or in part.
  • Installment Sales — with interest rates low, more of a sale counts as capital gain than as ordinary interest income.
  • Grantor-Retained Annuity Trusts — noting that we have seen proposals from money-hungry Congressmen to eliminate short-term GRATs, the author urges consideration of a strategy “sanctioned by the tax code” while rates remain low;
  • Charitable Lead Trusts — Charitable lead trusts (in which a charity uses trust assets for a term of years to create income, and then returns them to your children or grandchildren) are likely to pass more tax-free assets to beneficiaries when interest rates and asset values are low. Given historically low interest rates and low asset values, lifetime CLTs, which can create income tax deductions now and save estate taxes later, are worth considering if you are charitably inclined.

Check out the article, and then contact me if you’d like to talk about any of these strategies in more detail. Remember, nobody knows how long interest rates will stay this low. They could rise tomorrow, so if you’ve been thinking along these lines, it’s time to get moving.

Filed Under: Estate Taxes, Trusts, Wealth Preservation

“How complicated can death taxes really be?”

September 24, 2011 By

IRS Estate Tax InstructionsThe IRS released on September 21 draft instructions for completing federal estate tax returns for persons dying in 2011. If you believe regular old Form 1040s have become overly complicated, just wait until you see these.

Filed Under: Estate Taxes