Last Chance for Risk-Free Roth Conversions

The rules will change–and not for the better–in 2018, assuming the Tax Cuts and Job Act passes.

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Selecting Your Executor

When a family member dies, the person selected as the executor of the estate is often one of the largest causes of family discord.

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7520 Rate Will Rise Slightly in December

The 7520 rate for December 2017 will rise to 2.6%. A table showing historical 7520 rates since 2008 is here. Source: Rev. Rul. 2017-24 (pdf) Posted by Joel D. Roettger, JD, LLM, EPLS

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Handwritten Modifications to Revocable Trust Deemed Invalid

In a recent case, the Tennessee Court of Appeals found that a settlor failed in her do-it-yourself approach to estate planning.

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Distribution from Donor Advised Fund to Private Foundation

Technically, it is possible, but there would be some significant strings attached.

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Estate and Gift Tax Exemptions Will Rise in 2018

The IRS recently announced inflation adjustments to various estate and gift tax items for 2018.

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2018 Retirement Plan Contribution Limits

The IRS recently announced the 2018 contribution limits for retirement plans.

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7520 Rate for Nov. 2017

The 7520 rate for November 2017 will be 2.4%. A table showing historical 7520 rates since 2008 is here. Source: Rev. Rul. 2017-21 (pdf) Posted by Joel D. Roettger, JD, LLM, EPLS

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Support Trusts

As the previous post notes, a special rule applies to a support trust in which the settlor’s spouse is a beneficiary. In that case, the trustee shall consider the spouse’s other resources (i.e., assets outside of trust) before making a distribution. But what is a “support trust” and why does the classification matter?

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Slight Decrease in October 2017 7520 Rate

The 7520 rate for October 2017 will drop to 2.2%, down from 2.4% in September. A table showing historical 7520 rates since 2008 is here.

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Trustee’s Consideration of Other Resources

Consider the following scenario. A trust instrument provides that the trustee is authorized, but not required, to distribute income and principal for a beneficiary’s health, support, maintenance, and education. The beneficiary, who has significant assets of her own, requests a distribution to pay for elective surgery. The trust agreement, as is commonly the case, says nothing about a beneficiary’s other resources (i.e., assets outside of the trust). In deciding whether to approve the trust distribution, must the trustee nonetheless consider whether the beneficiary has the means to pay for the surgery on her own? 

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For a Limited Time Only: IRS Grants Extension to Elect Portability

Executors who discovered too late that they should have made a portability election have gotten a reprieve. 

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More on the Primacy of Beneficiary Designations

Beneficiary designations trump a will. Tennessee has a statute on it:

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Spousal Rollover When RLT is Beneficiary

Is a spousal rollover available when the beneficiary of an IRA is a revocable trust? Surprisingly, in some cases, the IRS says yes.

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Rushed Prenup Invalidated by Court

How much time must pass between the execution of a prenuptial agreement and the wedding of the parties in order for the agreement to be enforceable?

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Joint Revocable Trust: Gift on Creation?

Not if the non-contributing spouse has the unilateral power to revoke:

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Children Born after the Will is Executed

A good Last Will and Testament will address the issue of children born after the document is executed. Nonetheless, the Tennessee Code has the situation covered: A child born after the making of a will, either before or after the death of the testator, inclusive of a mother-testator, not provided for nor disinherited, but only pretermitted, in the will, and not provided for by settlement made by the testator in the testator’s lifetime, shall succeed to the same portion of the testator’s estate as if the testator had died intestate. The statute goes on to say that a pretermitted child’s share is to be funded pro rata out of the shares of the other beneficiaries.  Note that the quoted statute only […]

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Revocable Trust as Post-Nup?

Can a revocable trust created by one spouse after marriage constitute an enforceable postnuptial agreement for divorce purposes? This question arose in a recent case decided by the Tennessee Court of Appeals. The facts are as follows: Husband and Wife were married in 2006. It was a second marriage for both parties. In 2009, Husband established a revocable trust, naming himself as trustee and Wife as successor trustee. The revocable trust named Husband as current beneficiary and Wife and children as remainder beneficiaries of anything left in the trust at Husband’s death. Husband also executed a will that directed his probate assets to the revocable trust at death. Husband funded the revocable trust with at least four properties: (1) a lakehouse […]

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TISTs: Who SHOULD be Trustee?

A previous post discusses who can legally be the trustee of Tennessee Investment Services Trust (TIST). A better question might be: who should be the trustee of a TIST? Choosing the wrong trustee could expose a TIST to creditors. One argument in favor of piercing a TIST is that the trustee is beholden to the grantor. That is, a creditor might argue there is a tacit understanding that the trustee will simply follow the grantor’s instructions without exercising independent judgment. This is simply a version of the alter ego argument discussed here. Essentially, the argument is that the trust is a sham and thus should be disregarded.  The best way to avoid this argument is to appoint a trustee that has written policies […]

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June 7520 Rate Announced

The 7520 rate for June 2017 will remain at 2.4%. A table showing historical 7520 rates since 2008 is here. The effectiveness of various estate planning and charitable planning techniques is measured in terms of the 7520 rate. These techniques include Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trusts (QPRTs), Charitable Remainder Trusts (CRTs), and Charitable Lead Trusts (CLTs). If the assets transferred to these trusts appreciate faster than the 7520 rate in effect at the time of transfer, a plan would normally be considered successful in shifting value outside of a taxpayer’s estate for estate tax purposes.  Fortunately, the 7520 tends to be low relative to market rates of return. Source: Rev. Rul. 2017-12 (pdf) Posted by Joel D. […]

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Health Insurance and Gift Tax

Are payments of health insurance premiums for a child, grandchild, or other party subject to federal gift? No, provided the payment is made correctly. I.R.C. § 2503(e)(2) excludes from gift tax any amount paid on behalf of an individual: (A) as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or (B) to any person who provides medical care (as defined in section 213(d)) with respect to such individual as payment for such medical care. For this purpose, medical care is defined under Section 213(d) as amounts paid for: for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, […]

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Estate Planning for Retirement Assets in a Nutshell

When the owner of an IRA or 401(k) plan dies, the plan must pay out over some period of time. This is true regardless of whether the IRA/401(k) is a traditional account or a Roth account. The only exception is when the surviving spouse is named a beneficiary. In that case, the surviving spouse has the option of rolling over the decedent’s account to his or her own account. Amounts distributed from a retirement plan–excluding Roth distributions–generally constitute taxable income to the recipient. From an income tax standpoint, the best result is to “stretch out” payments for as long as possible. This is desirable even with a Roth account, because amounts remaining in the account continue to grow tax-free. The tax rules […]

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Forms of Asset Protection

Ownership by the Other Spouse–It is not uncommon for a spouse with high liability exposure to transfer assets to his or her spouse with a lower risk profile. Tenancy by the Entirety (TBE)–TBE refers to assets titled in the name of husband and wife. A creditor of one spouse may not reach TBE property unless and until the non-debtor spouse dies or the TBE is severed by the divorce of the parties. Retirement Assets–State law protects IRAs from the creditors. Federal law protects qualified plans such as 401(k)s. This protection applies to the account owners. Whether it extends to beneficiaries who inherit the accounts is an open question. According to the Supreme Court, the answer is no, at least in […]

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The Right for Trusts to Remain Silent

Under the Tennessee Trust Code, is a trustee required to give beneficiaries information about their trust? Not necessarily.

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2018 HSA Limits Announced

The IRS has announced the maximum amount an individual can contribute to a Health Savings Account (HSA) in 2018. For individuals with self-only coverage, the HSA limit will be $3,450. For individuals with with family coverage, the limit will be $6,900. In order to qualify for an HSA, you must be enrolled in a “high deductible health plan.” For calendar year 2018, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage. Earlier posts about HSAs: Are HSAs Protected […]

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